Sebi allows mutual fund companies to invest in REITS and Invits

THE SECURITIES and Exchange Board of India (Sebi) on Saturday allowed mutual fund (MF) companies to invest in hybrid instruments such as Real Estate Investment Trusts (REITS) and Infrastructure Investment Trusts (Invits). The regulator, however, has put certain conditions on mutual funds for such investments.

According to Sebi, a MF scheme cannot “invest more than 10 per cent of its NAV (net asset value) in units of REITS and Invits”. Out of this, MFS cannot invest more than 5 per cent of its NAV in units of a single issuer of REITS and Invits.

This limit of 10 per cent and 5 per cent is, however, not applicable to investments in the case of index fund or sector- or industry-specific scheme pertaining to REITS and Invits.

“No mutual fund under all its schemes should own more than 10 per cent of units issued by a single issuer of REITS and Invits,” said Sebi in a release.

The investment restrictions, Sebi said, is applicable to all fresh investments by all schemes or an existing scheme.

Sebi also streamlined the regulatory framework for mergers between listed and unlisted companies.

According to the new norms, in the case of merger of an unlisted company with a listed company, the public shareholding of the merged entity (including the qualified institutional buyers of the unlisted entity) cannot not be less than 25 per cent.

“The objective is to have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company,” said Sebi. The unlisted firm will also have to disclose material information to the public. Sebi also said that an unlisted firm can be merged with a listed company only if it is listed on a stock exchange having nationwide trading terminals.

To ensure larger participation of public shareholders, the merger will have to be approved through e-voting if it results in reduction in the voting share per cent of prescheme public shareholders by more than 5 per cent of the total capital of merged entity, mergers involving transfer of whole or substantially the whole of the undertaking of a listed company and consideration for such transfer is not in the form of listed equity shares and merger of unlisted subsidiary with listed holding company where the shares of the unlisted subsidiary have been acquired by the holding company directly or indirectly from the promoter/promoters group.

Apart from this, Sebi in its board meeting held on Saturday in Jaipur reviewed the existing advertisement guidelines for mutual funds and allowed celebrity endorsements of MFS at industry level. Sebi said celebrities cannot be used for endorsing a particular scheme of an MF or as a branding exercise of a fund house. “Further, prior approval of Sebi shall be required for issuance of such advertisements which feature celebrities,” it said.

In terms of information disclosure in MF advertisements, the regulator wants more up-to-date information and range of returns over several investment horizon.

MF schemes, Sebi said, can now be advertised “in terms of CAGR (compound annual growth rate) for the past 1 year, 3 years, 5 years and since inception; in place of current requirement to publish scheme’s returns for as many 12 month periods as possible for the past 3 years”.

Sebi also cut the fee paid by brokers to the regulator by 25 per cent. “This will result in reduction of overall cost of transactions and will benefit the investors and promote the development of the securities market.”

The regulator has streamlined its consent norms as the regulator can now charge interest in the case of excessive delays in filing of consent applications or payment of settlement amount among other things.

The regulator also approved the proposal to amend various norms to enable the market participants to make payments to Sebi through digital mode.