SEBI tweaks MF rules

FPJ BUSINESS DESK Mumbai

In wide- ranging changes to various regulations, the capital market regulator, SEBI, on Thursday made it easier and more cost effective to invest and raise funds through IPOs but investments in mutual funds could become more expensive.

The market regulator also made it mandatory for all the investment advisers providing their services for a fee to get themselves registered, while putting checks and balances against possible misuse of funds garnered from investors through initial public offers and mutual funds.

Announcing its decisions, Sebi Chairman U K Sinha said the retail investors in IPOs would also be assured of a minimum number of shares and the companies would be required to announce their price band at least five days in advance.

In a decision that could make it expensive for investors to put money in mutual funds, the Sebi decided that any service taxes would be charged to ultimate investor, and not to the fund house as is the current practice.

Besides, the asset management company would be allowed to charge additional expense ratio ( the charge levied by fund houses towards fund management fees and other expenses) for catering beyond a threshold limit in the smaller cities.

The sweeping changes are expected to revive the mutual fund industry and enhance retail participation in primary markets to deepen their penetration.

The mutual fund industry has been hit hard by sluggish markets while removal of entry loads had forced distributors to shun the product.

Other decisions include allowing mutual funds flexibility in using fund expense charges and a committee is being set up to frame a national mutual fund policy.

Chairman Sinha said that various steps taken for revival of mutual fund industry would ‘impel and motivate AMCs to go beyond the 15 cities’. To revive primary market, Sebi decided that a minimum lot of shares would be assured to retail investors in IPOs. It also approved e- IPO procedure for electronic bidding in public offers to help investors across the country bid for shares in a cost- effective manner. The regulator would also frame new rules for investment advisers, Sinha said. It has also recommended to the government tax benefits to equity MF investors under the proposed Rajiv Gandhi Equity Savings Scheme ( RGESS), Sinha said.

To help controlling shareholders pare down their stake, 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 this cannot be issued to promoters’group.