Investors needn't foot MF issue bill
Capital market regulator SEBI has added to the appeal of closed-ended mutual funds and indicated that short selling will be introduced in the first week of February.
By TNN |
MUMBAI: Capital market regulator SEBI has added to the appeal of closed-ended mutual funds and indicated that short selling will be introduced in the first week of February.
Stock exchanges are waiting for a CBDT notification before they bring in stock lending and borrowing of securities. At its board meet on Wednesday, the regulator has ruled that investors in closed-ended mutual funds will not have to bear the initial issue expenses while investing in the fund.
This was among the decisions taken at the SEBI board meet in Mumbai on Wednesday. At the same time, entry loads in these schemes have been introduced. Still, investors stand to gain on the whole. Because the trend of them footing the bill for big-budget promotional campaigns for new-fund offerings could soon be a thing of the past.
More specifically, asset management companies (AMCs) can still go in for ad campaigns, but they will have to be careful as only entry loads (2.25% of investments) can be tapped for meeting these expenses. For anything more, the fund house will have to pay from its own pocket.
Besides if an investor approaches a fund house directly, then he will not even have to pay this entry load. Prior to this regulation, fund houses were allowed ‘amortisation of initial issue expenses.’ This accounting procedure allowed funds to spend the amount collected as fees, when the new fund offer is on (currently, about 6% for a three-year fund) in stages, and not at one go.
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Typically, about 3% is paid to brokers as commission while the rest is used to pay for the billboards, television spots and other marketing expenses. In a bid to simplify procedures to make the regulation process of intermediaries less burdensome and cost effective, the SEBI Board on Wednesday decided to allow permanent registration. However only intermediaries other than FIIs and venture funds have been bought into the ambit of this regulation.For the intermediary, say a broker, merchant banker or DP, it would mean less documentation and taking away the burden of renewing registration. “This new regulations seek to consolidate the common requirements and put in place a comprehensive framework which will apply to the intermediaries,” said the SEBI chief M Damodaran.
While rewriting the SEBI (Intermediaries) Regulations, the regulator has also simplified the process of registration for undertaking multiple activities by the same intermediary. It has in addition revised the criteria to determine whether the intermediary is a fit and proper person and made it principle based. It has simplified the procedure for suspension/cancellation of certificate of registration and the time taken in this regard has sought to be reduced.
“Our aim is to bring into public domain information regarding public intermediaries so as to enable an investor to make an informed decision,” Mr Damodaran said. For corporate debt issuances, the market regulator approved “minimal and incremental” disclosure to entities already known to the market i.e. have earlier approached the markets for funds, while maintaining that unknown entities need to file detailed disclosures.
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The SEBI chief said securitised debt segment had not taken off due to the want of regulation. He said that as soon as regulations are finalised, there will be a legal frame work for public issue of securities debt. “Our market has been missing this instrument,” Mr Damodaran said. The regulator had passed the Securities Contracts (Regulation) Amendment Act in the previous year for enabling the listing and trading of securitised debt instruments.
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As per the approved regulations, securitised debt issued to the public (over fifty or more persons), listing will be mandatory. He also said that the PMAC(primary market advisory committee) is looking to simplify the IPO process so as to not let retail investors money be locked in for a long time, particularly where an issue has been oversubscribed several times. “The PMAC is looking at alternatives to reduce the time the money would remain in the system,”, he said.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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