More reforms to foster equity culture in offing

Prime focus is protecting investors interest, says market watchdog

More reforms to foster equity culture in offing

Market regulator Sebi has said it plans to undertake several reforms to develop equity culture in the country, but will not allow companies to raise funds through IPOs if their intentions are unclear and investors’ interest is compromised.

Listing out the steps being taken for the benefit of the markets and investors, Securities & Exchange Board of India (Sebi) Chairman U K Sinha said these measures would seek to balance the need of retail investors and the need for encouraging more people to invest in the equity market.

"These are all far-reaching reforms so far as expanding the equity culture is concerned. And, most importantly, this is not the end of it, we will consider many more reforms," Sinha said. To safeguard interest of investors, Sebi has decided to reject those IPOs (Initial Public Offers), about which the regulator is “not very sure that the intention is clear, the data and information is clear.”

On the need to expand equity culture, Sinha said: Sebi has to balance the needs of the retail investors and also the need to encourage people to invest in the equity market. Both have to be balanced.  “We want an equity culture, but we want an equity culture where people invest on a long term basis.

Because if people invest on short-term basis, and there is lot of churning and buying and selling activities and in the process ending up paying more to the distributors rather than earning for themselves more benefits, we are trying to curb that tendency,” he said.

Pension reforms

Sinha said, pension is another area where reforms are necessary for developing an equity culture. “World over, equity market has developed on the back of pension reforms and that is missing in India.

It is not only about PFRDA, even EPFO should permit the funds to invest in the securities market. Large pension funds from across the world are coming to invest in India, but our own funds are not investing,” he said.

Sinha said Sebi has allowed an entirely new set of distributors like retired bankers, school teachers and retired government servants to sell mutual funds. “So, we have a simplified set of requirements for spreading the equity culture.

At the same time, to safeguard the interest of investors, we have said that they cannot sell complex products,” he said. “That is another measure towards this balance between equity culture and the safeguarding of investors’ interest.”

In the primary market, Sinha said, only five-six centres used to have maximum number of applications from retail investors, but now Sebi has allowed and facilitated that applications can be obtained and filed from 1,000 centres.

“Earlier, when IPOs used to come and whenever it was a good IPO, there used to be reports of  grey market for applications alone. People had to pay money for applications. But, Sebi’s latest move will eliminate all this. Now you can go to any broker, you can download the application, fill up the application directly or in paper form, all these things we have now provided,” Sinha said.

In another IPO market reform measure, Sinha said, Sebi has expanded the ASBA (Application Supported by Blocked Amount) facility.

Earlier, when a retail investor used to apply in an IPO, he used to sign a cheque and the money debited from his account, suffering loss of interest for 3-5 weeks because there was no guarantee that the shares will be allotted for the entire amount debited from his account.

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