The Securities and Exchange Board of India (SEBI) has broadly accepted the recommendations of the H.R. Khan Committee on Know-Your-Client requirements for foreign portfolio investors (FPIs), while lowering the total expense ratio (TER) for open-ended equity schemes, thereby making it less expensive for investors to invest in mutual funds.
The board of the capital markets regulator, which met here on Tuesday, decided to amend the contentious circular issued in April and issue a separate circular to address the concerns raised by overseas investors.
“SEBI has agreed to amend the circular [issued in April] and the new one is largely in line with Khan Committee recommendations,” SEBI Chairman Ajay Tyagi told the media.
In another major decision, the regulator has capped the maximum expense ratio at 1.05% for open-ended equity schemes with assets under management (AUM) in excess of ₹50,000 crore. Currently, schemes with AUM in excess of ₹300 crore charge 1.75% as total expense ratio.
Further, SEBI has laid down a range of 1.05% to 2.25% to be charged as expense ratio depending on the AUM of the scheme. Earlier the range was 1.75% to 2.5%.
Additional expense
The regulator has, however, allowed an additional expense ratio of 30 basis points for retail flows from beyond the top 30 cities.
More importantly, the additional expense will not be allowed for flows from corporates and institutions.
The regulator is of the view that the lower expense ratio would lead to investors saving ₹1,300 crore to ₹1,500 crore in commissions.
The regulator has framed the SEBI (Settlement Proceedings) Regulations 2018 which bar offences that cause a marketwide impact, loss to investors or affects the integrity of the market, to be settled through the consent route.
While serious offences like insider trading or front running can be settled through consent, the regulator has said that it would use a principle-based approach while deciding on such matters.
“The principle-based approach in new settlement regulations will have to be seen how it pans out because the criticism of current settlement regulation itself was non-uniformity of regulatory stand on settable and non-settleable category within offences under FUTP Regulations,” said Sumit Agrawal, Founder, RegStreet Law Advisors and a former SEBI law officer.
Meanwhile, the regulator will also not settle any proceedings wherein the applicant is a wilful defaulter or if an earlier application for the same offence has been rejected.
The board of the capital markets has also approved a framework for permitting foreign entities having an exposure in physical commodity market to hedge in the commodity derivatives segment.
SEBI will also revisit the proposal of allowing Unified Payment Interface (UPI) while bidding for shares in an initial public offer (IPO) that would bring down the overall timeline from the current T+6 to T+3 days.
