Sebi approves new rules to widen investment avenues

Mumbai: The Sebi board on Thursday approved new regulations for portfolio managers, allowing investment in foreign securities, and a revamped settlement framework, while permitting foreign portfolio investors to participate in a wider range of exchange-traded commodity derivatives.

Under the new rules, the regulator would be introducing a portfolio manager route for investing in mutual fund units, enabling portfolio managers to invest clients' funds in direct plans of mutual funds, including ETFs, index funds and specialised investment funds. The minimum ticket size would be ₹25 lakh, while fixed management fees would be capped at 1% of client assets under management(AUM).

"The introduction of PRIM - allowing portfolio managers to offer mutual fund and SIF-based strategies - meaningfully widens access and brings more investors into a well-regulated, professionally managed framework," said Vikas Khemani, founder, Carnelian Asset Managment.


Read more: Sebi clears PRIM route for PMS players to invest in mutual funds, SIFs; Rs 25 lakh minimum ticket

The regulator would also allow portfolio managers to invest in initial public offerings and primary issuances in the debt market. They would also be allowed to invest up to 10% of a client's AUM in investment grade, non-convertible unlisted debt securities under discretionary PMS(portfolio management services).

Vikas Khemani said this gives managers flexibility to construct better risk- adjusted portfolios.

The framework provides greater flexibility for investment in exchange-traded derivatives, allowing exposure of up to 1.25 times the client's AUM. It also permits investment in foreign securities under discretionary and non-discretionary PMS, including listed equity and debt, REITs, overseas mutual funds, exchange-traded funds, index funds and foreign government debt.

Anshul Sharan, co-founder and chief executive of Ametra PMS said, the expanded investment universe would significantly broaden the reach of PMS.

Read more: Sebi board approves FPI play in non-agri commodity derivatives, expands scope of PMS

The new PMS framework also introduces independent fund managers who can manage client portfolios in association with registered portfolio managers. The registered portfolio manager will retain full responsibility and liability for the activities of the independent fund manager.

Aditya Agarwal, co- founder of Wealthy.in, a wealth management platform said, the new avenues would open up a wider set of people being able to offer fee based management of fund portfolios which was previously available only to investment advisers.

The Sebi board also approved significant changes to the Settlement Regulations, introducing a formula-based approach to settlement amounts, comprising a base amount linked to the minimum penalty prescribed under securities laws, adjusted for factors including the stage of proceedings, regulatory action, gravity, aggravating and mitigating circumstances, along with legal costs.

The framework expands access to settlement by introducing a settlement notice before a show-cause notice, giving entities 60 days to apply, while the period for filing an application after a show-cause notice has been increased from 60 to 90 days. It also introduces a fast-track route for certain cases, including those where the settlement amount does not exceed ₹10 lakh.

The new rules provide for settlement of cases involving misrepresentation of financial statements and diversion or siphoning of funds, subject to appropriate remedial and regulatory terms, including disclosures and bringing back diverted funds.

"In the recent past, there has been significant concern that settlements involving technical and minor violations resulted in large settlement amounts, causing such settlements to fail," said Tomu Francis, partner, Khaitan & Co.

"If this issue is addressed, as appears to be the intent of Sebi, we could see a significant increase in the number of settlements. This, in turn, would help free up the bandwidth of adjudicating officers to focus on more important matters," Francis said.

Sebi also approved wider participation by FPIs (foreign portfolio investors) in exchange-traded commodity derivatives. FPIs would be permitted to trade in non-agricultural index derivatives, irrespective of whether the underlying is cash-settled, as well as non-cash-settled non-agricultural commodity derivatives.