Sebi makes MFs cheaper, clears way for faster IPOs
Sebi asks firms to tap bond market, okays new KYC norms for FPIs
MUMBAI: Equity investors can look forward to lower costs while purchasing mutual fund schemes and faster listing of shares in initial public offerings (IPOs), with the markets regulator Securities and Exchange Board clearing proposals in this respect.
A Securities and Exchange Board of India (Sebi) board meeting on Monday also mandated large companies to tap the bond market for 25% of their incremental borrowings, besides allowing interoperability among clearing corporations, and approving a framework to open commodity derivatives to foreign participants.
In a statement issued after the meeting, Sebi said all mutual fund commissions and expenses must be paid from the scheme itself, adding that the industry must adopt a full trail model of commission in all schemes, without paying any upfront commission. Trail commissions are payments earned by distributors as long as investors stay invested in the scheme.
Sebi capped the total expense ratio (TER) for equity-oriented mutual fund schemes (closeended and interval schemes) at 1.25% and for other schemes at 1%. However, it allowed an extra 30 basis points (bps) for selling in B-30 (beyond top 30) cities. One basis point is one-hundredth of a percentage point.
The TER cap for fund of funds will be 2.25% for equity-oriented schemes and 2% for other schemes. “The board took note of the benefits of the (Sebi mutual fund advisory committee) proposal with respect to sharing of economies of scale, lowering the cost for mutual fund investors, bringing in transparency in appropriation of expenses, and reducing mis-selling and churning,” the Sebi statement added.
The TER cap could have a ₹1,300-1,500 crore impact on the revenue of the mutual fund industry, Sebi whole-time member Madhabi Puri Buch told reporters.
According to Harsha Upadhyaya, chief investment officerequity, Kotak Mahindra Asset Management Co. Ltd, the new TER may cause short-term disruptions, but will enhance returns for investors. “However, the change in TER may impact profit margins of AMCs.”
Meanwhile, in a relief for foreign portfolio investors (FPIs), Sebi chairman Ajay Tyagi said the board discussed and broadly agreed upon the proposed knowyour-customer (KYC) requirements and eligibility criteria for FPIs and a revised circular will be issued separately.
Sebi also reduced the time period for listing after an IPO to three days from six, freeing up locked investor funds faster. According to Sebi, early listing and trading of shares will benefit both issuers as well as investors. “Issuers will have faster access to the capital raised thereby enhancing the ease of doing business and the investors will have early liquidity,” it said.
Also, Unified Payment Interface (UPI) has been introduced as a new payment mechanism for retail investors in IPOs.
Sebi also allowed interoperability of clearing corporations, helping market participants consolidate their clearing and settlement functions at a single clearing house and reducing the effective trading cost for investors. Interoperability will lead to efficient allocation of capital for the market participants, it said.
The Sebi board also approved a framework for enhanced market borrowings by large corporates (outstanding borrowing of ₹100 crore or more), which will come into effect from April 1, 2019, requiring corporates to raise 25% of their incremental borrowings through bond market.