Mumbai: In a significant move, in order to ensure that India’s fund managers allocate retail investors’ money with more prudence, the Securities and Exchange Board of India, on Tuesday, tightened the norms for asset management companies or AMCs. Following a board meeting, Sebi has also reduced the investment ticket size in REITs, relaxed investment norms in alternative investment funds (AIFs) and tightened the directorship norms for listed companies to enhance corporate governance standards.
The markets regulator has amended the country’s mutual fund regulations, directing AMCs in the country to put in a minimum amount of money from their own account every time a mutual fund scheme is launched. Sebi said that AMCs will have to make such an investment contribution as a “skin in the game” in proportion to the varying amount of risks associated with the MF scheme, which essentially means higher the risk of losses bigger has to be the minimum contribution made by the AMC itself.
At present, as skin in the game in the MF schemes AMCs are required to provide an investment of 1% of the amount raised in the new fund offer or Rs. 50 lakh, whichever is less.
Sebi’s move will not only make AMCs more cautious while launching MF schemes but also, curb mis-selling and ensure that fund managers allocate the public money more judiciously to curb risks of losses.
Sebi’s latest move assumes significance in the backdrop of a few instances over the past three years in which many retail MF investors had to suffer losses on their net asset values (NAVs) because of investment in high-risk instruments or high exposure of investment in a single sector.
In another major move, Sebi has relaxed the investment norms in real estate investment trusts (REITs), which has been gaining a huge popularity over the past two years.
Amending the extant norms, Sebi has revised the minimum subscription and trading lot for publicly issued REITs and InvITs. Sebi said the minimum application value will be brought down from Rs. 50,000 now to a range of Rs.10,000-15,000 and the revised trading lot shall be of one unit.
In July 2020, Mint first reported that Sebi was considering opening up REITs and InvITs to small investors by lowering the minimum trading lot size of REIT units from Rs.50,000 to the value of just a single unit, much like how stocks are traded.
Sebi’s move is aimed at improving liquidity for investors in REITs and InvITs.
Harsh Shah, CEO, IndiGrid said, “The reduction in trading lot size to 1 is a landmark step by Sebi to deepen the market for InvITs in India. This will not only lead to better liquidity and efficient price discovery, but also provide an attractive opportunity for retail investors to earn stable yields with growth potential. The move also paves the way for increased institutional participation with greater confidence on liquidity. This policy action by Sebi will pave the way for a vibrant and successful InvITs market in India for infrastructure investment.”
“This change has democratised this market and with three publicly listed INVITs and three publicly listed REITS, everyone who wants to have income which is better than fixed deposit income and with reasonable risk (albeit higher than fixed deposit) can now enter this market. This is a very welcome amendment and will provide a massive fillip to publicly listed INVITS and REITS,” said Yash Ashar, partner and head – capital markets at Cyril Amarchand Mangaldas.
The markets regulator has also opened up the unlisted market route for all classes of investors as long as they are recognised as well-informed investors.
The markets regulator has introduced a concept of “accredited investors” and said that such investors will be allowed to invest in alternative investment funds such as private equity, venture capital , social schemes and hedge funds without requiring to follow the minimum investment norms.
Accredited investors will have flexibility to participate in investment products with an investment amount lesser than the minimum amount mandated in the AIF rules and portfolio managers regulations.
Accredited investors will be those who may be considered to be well informed or well advised about investment products. Subsidiaries of depositories stock exchanges, and a few other specified institutions will be recognized as accreditation agencies, which can grant accreditation status and issue accreditation certificate to accredited investors.
In another move, Sebi has tightened the directorship norms for listed firms in a bid to improve corporate governance standards.
Sebi said any appointment or re-appointment or removal of an independent director can be done only through a special resolution of shareholders.
The process to be followed by listed firms’ nomination and remuneration committee for selecting independent directors has been made more transparent by Sebi and enhanced disclosures will be required regarding the skills for appointment of any individual as an independent director in a listed company.
Sebi said at least two-third of the NRC has to comprise of independent directors. Additionally, at least 2/3rd of the members of the audit committee of every listed company need to be independent directors and all related party transactions have to be approved by only independent directors on the audit committee.
Also, a shareholder approval for appointment of all directors will be mandatory and while making such appointment the company must include it as an agenda at the immediately upcoming general meeting, or within three months of the appointment on the board, whichever is earlier, said Sebi.
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