The Securities and Exchange Board of India (SEBI), on Thursday, announced a slew of measures to revamp the capital market by wider participation of retail investors in the initial public offering (IPO) and mutual fund industry, including steps to improve the geographical reach of mutual funds and introducing electronic-IPO.
“SEBI has been concerned about the penetration of the mutual fund industry……..and electronic IPO now is possible,” said U.K. Sinha Chairman, SEBI, while announcing the measures after its board meeting here.
Asset management companies (AMCs) are allowed to charge additional total expense ratio (TER) up to 30 basis points (bps) depending upon the extent of new inflows from locations beyond top 15 cities. SEBI expects this will improve the geographical reach of mutual funds, and bring in long-term money from smaller towns. TER is a measure of the total costs associated with managing and operating an investment fund such as mutual fund.
In a move to increase the base of mutual fund distributors, the market regulator has allowed postal agents, retired officials from government, banks and retired teachers to distribute simple products.
To avoid differential treatment in the same scheme to different classes of investors, all new investors will be subjected to single expense structure under a single plan. However, “to be fair to direct investors and promote direct investment,” it was decided to have a separate plan for direct investments, with a lower expense ratio.
SEBI has allowed cash transactions in mutual fund schemes to the extent of Rs. 20,000 to help enhance the reach of mutual fund products among small investors, who may not be tax payers and may not have PAN or bank accounts such as farmers, small traders/businessmen and workers. To enable the mutual fund industry to be in line with all other industries, where service tax is borne by the end-user, it is decided that the service tax payable on investment management fees should be charged to the scheme.
The regulator has also included mis-selling of mutual fund products as a ‘fraudulent and unfair trade practice’ in SEBI Regulations. It will also create a system of identification of actual sales personnel of distributors and evolve a system of ‘product labelling’ to avoid mis-selling.
Further, the entire exit loads would be credited to the scheme while the AMCs will be able to charge an additional TER to the extent of 20 bps. “This will not result in any additional cost to the investors and encourage long-term holding and reduce churn and align the interests of the AMCs,” said Mr. Sinha. AMCs are also asked to make monthly portfolio disclosures on their website.
The SEBI Chairman said that the regulator would come out with a long-term policy for the mutual fund industry taking into account its importance in mobilising domestic savings for the growth of the economy. The policy would include all aspects, including enhancing the reach and promoting financial inclusion, tax treatment and obligation of various stakeholders.
Initial public offerings
To widen the distribution network of IPOs, SEBI has decided to make available the nationwide broker network of stock exchanges at more than 1,000 locations in addition to the existing channels, for distributing IPOs in electronic form. Investors can approach any of the brokers in these locations for applying in IPOs, either physically or electronically.
The facility of application supported by blocked amount (ASBA) will also be extended to applicants coming through this mode. Stock exchanges would provide for download of application forms on their website and would also facilitate investors to view the status of their applications on their website, similar to secondary market transactions. Brokers uploading the electronic applications form will be adequately compensated by the issuer companies.
To further reduce the time taken from issue closure to listing, the reach of ASBA would be enhanced by mandating all ASBA banks to provide the facility in all their branches in a phased manner.
Modifies allotment system
The SEBI, in a move to increase the participation of retail investors, modified the share allotment system, irrespective of his application size. It ensures every retail applicant gets allotted a minimum bid lot, subject to availability of shares in aggregate. The system will satisfy more number of smaller applicants in the oversubscribed issues. The minimum application size for all investors is also being increased to Rs.10,000-15,000, as against the existing Rs.5,000-7,000.
To encourage professionals and technically qualified entrepreneurs who are unable to meet the requisite 20 per cent contribution by themselves as promoters they will be allowed to meet the same with the contribution of SEBI-registered Alternative Investment Funds such as SME Funds, Infrastructure Funds, PE funds and VCFs, subject to a cap of 10 per cent. SEBI also said that it would permit additional routes, including rights and bonus issue, to facilitate companies to reach minimum public shareholding requirements. To allow more flexibility to the issuers, changes up to 20 per cent in the amount proposed to be raised as given in the objects of the issue at the red-herring prospectus (RHP) stage, as against the existing 10 per cent, will not necessitate re-filing with SEBI.
To facilitate qualified institutional placements (QIPs) even in a falling market, issuers will be allowed to offer a maximum discount of 5 per cent to the price calculated as per the SEBI regulations.