Listed companies will now need to keep a check on excessive executive pay, among other new ’corporate governance’ measures, while mutual fund investors can look forward to tax breaks on investments up to Rs.2 lakh.
In sweeping changes to the way listed companies are governed in India, the Securities and Exchange Board of India (SEBI), on Thursday, also asked them to follow an orderly succession planning, put in place whistle-blower policy for employees, have at least one woman director, get public shareholders’ nod for related party transactions and carry out performance evaluation of all directors.
The new corporate governance norms were approved by the SEBI board at a meeting held here on Thursday, wherein a long-term policy was also cleared for the mutual fund industry while proposing tax benefits to the tune of Rs.50,000-Rs.2 lakh for those investing in such products. After the board meeting, SEBI Chairman U. K. Sinha said the tax related proposals would be sent to the government for due consideration, while new corporate governance norms would become applicable for all listed companies with effect from October 1, pursuant to being incorporated in the listing agreement. SEBI has been of the view that CEO salaries in some Indian firms have been higher than even their global counterparts and do not reflect true financial positions of the firms.
SEBI also made the KYC (Know Your Client) compliance easier for investors by allowing various kinds of intermediaries such as brokers and mutual funds to access the investor KYC details from the centralised KYC Registry Agency (KRA), rather than carrying out a fresh KYC process.
The new corporate governance norms also require greater oversight of and by independent directors, limits the number of directorships of board members, prohibits award of stock options to independent directors and excludes ‘nominee directors’ from the definition of independent directors. Besides, these proposals include expanded role of audit committee, greater disclosure of remuneration policies, mandatory constitution of nomination and remuneration committees chaired by an independent director.
For mutual funds, SEBI has asked them to make greater disclosure about group investments and voting rights.
The regulator has also sought to weed out non-serious players by increasing the minimum net worth requirement for mutual funds from Rs.10 crore to Rs.50 crore, while they have been asked to contribute their own funds in the form of ‘seed capital’, amounting to 1 per cent of the amount raised from investors for their schemes.
SEBI also asked the government to allow the Employees’ Provident Fund Organisation (EPFO) to invest up to 15 per cent of their corpus in equities and mutual funds.
Besides, the regulator wants that all Central public sector enterprises (CPSEs) be permitted to invest their surplus funds in mutual fund schemes.
Mr. Sinha said SEBI wanted the government to provide a similar tax treatment to all long-term investment instruments, including pension, insurance or long-term mutual fund schemes.
Through the first-ever long-term policy for mutual funds, SEBI expects to help channelise household savings into these investment products.
The proposed tax benefits include creation of a long-term investment product, Mutual Fund Linked Retirement Plan, with tax incentive of Rs.50,000 under the existing Income Tax Act.
Alternatively, SEBI wants the government to enhance the limit under Section 80C of the Income Tax Act from Rs.1 lakh to Rs.2 lakh to help make various mutual fund schemes eligible for such tax benefits.