Sebi for mutual funds: Sebi revising norms to ensure fairness in AMCs
The board also approved a proposal to simplify norms for passive schemes of domestic mutual funds to allow exposure to shares of the sponsor’s group companies.
FPI
The regulator said FPIs with NRIs and OCIs as clients should be based at the International Financial Services Center (IFSC) in India and regulated by the International Financial Services Center Authority (IFSCA).
“The flexibility for such increased participation may be subject to certain conditions to manage regulatory risks,” Sebi said in a press release after the board meeting.
A 100% contribution limit is permitted provided that the FPI submits copies of PAN cards of all NRI and OCI investors along with their economic interest to the FPI to the Custodian. If the investor does not have a PAN, the FPI must provide the appropriate declaration along with other prescribed identity documents. Sebi said similar disclosure would be required in case of indirect holding of FPIs through entities or vehicles controlled by NRIs and OCIs. Tejesh Chitlangi, Joint Managing Partner, said, “SEBI’s decision to allow up to 100% NRI and OCI participation, up from less than 50% currently allowed only for IFSCA regulated FPIs, will lead to onshoring of India-focused offshore public market funds to IFSC. “It will be a good sign,” he said. , IC Universal Law.
Additionally, funds set up in IFSCs that seek up to 100% contribution to the corpus from NRIs and OCIs must ensure diversification of their investor base and investments.
mutual fund
The Sebi board also approved a proposal to simplify norms to create a level playing field for all asset management companies by allowing equity passive schemes to have exposure up to the weight of the underlying index components.
This exposure is subject to an overall investment limit of 35% for sponsoring group companies.
Currently, mutual fund schemes are not permitted to invest more than 25% of their net asset value in the sponsor’s group companies.
This limits a passive fund from effectively replicating the underlying index if the sponsoring group company makes up more than 25% of the index.
This puts these fund houses at a relative disadvantage compared to other asset management companies that do not have sponsor group companies accounting for more than 25% of the underlying index, Sebi said.
MF front running
The board also approved a proposal requiring asset management companies to have institutional mechanisms in place to curb potential market abuses, including front-running.
This move follows the recent precedents observed by Sebi in mutual funds.
The mechanism will consist of enhanced surveillance systems, internal control procedures and escalation processes to identify specific types of illegal activities, the regulator said.
The board also approved an exemption from the requirement that dealers and fund managers record face-to-face communications, including out-of-office interactions, during market hours. This will be implemented after asset management companies implement institutional mechanisms, Sebi said.
NCD
With regard to debt securities, the Sebi board approved a proposal to provide issuers with the option to issue non-convertible debentures (NCDs) and non-convertible redeemable preference shares (NCRPS) at face value of Rs 10,000 through private placement mode. Requirement to appoint a merchant banker.
This measure is aimed at increasing the participation of non-institutional investors in the bond market.
These NCDs and NCRPS are plain vanilla, interest or dividend paying instruments. However, he said credit enhancement would be allowed for such products.
