Incentives galore for MF industry

FPJ BureauUpdated: Sunday, June 02, 2019, 01:53 AM IST
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Mumbai

With an aim to revive the mutual fund industry, market regulator Sebi today announced a slew of financial and operational benefits and promised further long-term reforms, while asking the fund houses to reach out to investors in smaller cities.

Among the various steps approved at its board meeting here today, Sebi today allowed the fund houses full flexibility in using the amount charged to investors for various expenses and recommended to the central government to provide tax incentives to equity mutual fund investors.

In another measure that could increase the costs at the end of investors, the Sebi also decided that the service tax payable on investment management fees would be borne by the end user, and not the asset management company.

Talking to reporters after the board meeting, Sebi Chairman U K Sinha also said that a committee would be set up for framing a national policy on mutual funds and it would give the recommendations in about six months.

The regulator also decided to set up a self regulatory organisation (SRO) for regulation of MF distributors.

The steps would address issues like lack of penetration of MF products, inadequate distribution network, need for greater alignment of the interest of various stakeholders, regulation of distributors and issues concerning investor protection.

The Sebi said it has also decided to develop a long-term policy including financial inclusion and tax issues for MFs to deal ”with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy.”

The Sebi said the distributors’registration process would be simplified and the distributors base would be expanded by including postal agents, retired officials from government, banks, retired teachers etc for distribution of simple products.

To improve the geographical reach of mutual funds and bring in long-term money from smaller towns, AMCs are allowed to charge additional Total Expense Ratio (up to 30 basis points) depending upon the extent of new inflows from locations beyond top 15 cities.

Asset Management Companies (AMCs) will be able to charge 30 basis points if the new inflows from these cities/towns are minimum 30 per cent of the total inflows. In case of lesser inflows, the proportionate amount will be allowed as additional TER (Total Expense Ratio).

However, MFs would be required to make complete disclosures in their half yearly report regarding the efforts to increase penetration and the details of opening of new branches especially beyond top 15 cities.

The Sebi has also asked the MFs to set apart a portion of the asset management fees annually for investor education.

Among other decisions, non-retail investors cannot withdraw or reduce their price or offer size in IPOs, but can enhance the same, as is the rule for retail investors.

For companies coming out with IPOs, they would now have to disclose the price band at least five working days before the opening of the bidding, as against the current norm for two days.

However, the board could not take a decision on having safety net for investors.

Regarding the service tax issue, Sinha said that Sebi’s impression is that the impact will not be more than 2-3 basis points on investors and this is already a practice in various other sectors, including the financial sector.

Besides, Sebi has also decided to set up an SRO (Self Regulatory Organisation) to look after the mutual fund distribution business. Also, the fund houses would have to follow a broader set of disclosure norms, Sinha said.

Also, Sebi has now decided to put a cap of 25 per cent of IPO size to the funds for general corporate purposes. Currently, there is no such cap.

Sebi also decided to fast-track clearance to public offer documents of companies and said it would frame clear rules for rejection of offer documents.

In a move that could help investors, Sinha said, the board has decided to recommend to the government for making equity MFs eligible for tax benefits under the the RGESS.

”In the long run, a policy needs to be made for MFs and a committee would be set up to develop mutual fund policy of the country,” Sinha said, while adding that the committee would finalise its recommendations in about six months.

Sebi also decided to make available new avenues like bonus and rights issues for promoters to attain a minimum public float of 25 per cent. But will not be issued to promoters’group.

The promoters can now offload 10 per cent out of the mandatory 20 per cent to alternate investment funds, while in compulsory book building process, QIB bid limit has been increased to 75 per cent from 50 per cent

Sinha said that the ”philosophy behind this (regulating investor advisers )is that if anybody is providing advice for a fee, they would be regulated. If somebody is not providing for a fee, they will not be regulated.”

”They can, in their business communication, use the word investment advisers,” he said, while adding that the financial advisers would be allowed to act as investment advisers.

”There are certain other categories like alternative investment funds might be giving advise even though it might not be their primary business. They are not covered and can continue with their work without getting registered with Sebi,” he said.

Regarding debt market, Sinha said there is no uniformity in the regulations for debt securities and Sebi has prescribed requirements for detailed debt disclosures in the country.

Sebi also decided to make available new avenues like bonus and rights issues for promoters to attain a minimum public float of 25 per cent. But will not be issued to promoters’group.

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