Market regulator Securities and Exchange Board of India (SEBI) has cleared a proposal to introduce a new asset class for high-risk profile investors to bridge the gap between mutual funds (MF) and portfolio management services (PMS). The SEBI board also approved the MF light-touch framework for passive schemes and investor-friendly and uniform norms for nomination facilities in the securities market.
During its meeting, the
board cleared 17 proposals, including an amendment to insider trading rules to clarify the definitions of 'connected person' and 'immediate relative' and relaxed eligibility criteria and compliance requirements for investment advisers and research analysts.
This was the first board meeting after the US-based short seller Hindenburg Research and the Congress party made allegations against SEBI's chairperson, Madhabi Puri Buch. Further, it was the first meeting after nearly 200 employees of SEBI protested against the 'toxic' work culture. However, neither issue is mentioned in the SEBI statement released after its board meeting.
New asset class with minimum investment size at Rs10 lakh
The SEBI board cleared a proposal to introduce a new asset class for high-risk profile investors to bridge the gap between mutual funds and portfolio management services in terms of flexibility in asset construction.
According to the market regulator, the minimum amount of Rs10 lakh can be invested for the new asset class per investor across all investment strategies of the new product in a particular asset management company (AMC).
"The new product also aims to curtail the proliferation of unregistered and unauthorised investment schemes or entities, which often promise unrealistic high returns and exploit investors' expectations for better yields, leading to potential financial risks. For instance, safeguards for the new product will include no leverage, no investment in unlisted and unrated instruments beyond those already permitted for MFs and derivatives exposure limited to 25% of assets under management (AUM) for purposes other than hedging and rebalancing," SEBI says.
'Light-touch' rules for passive MFs
According to the market regulator, MF Lite framework or light touch regulations include relaxed requirements relating to eligibility criteria for sponsors, including net worth, track record and profitability, the responsibility of trustees, approval process and disclosures.
The present regulatory framework provides for the regulation of MFs and the schemes managed under it. Passive funds follow a rule-based investment strategy and there is negligible discretion with AMCs regarding asset allocation and investment objectives and various provisions of the existing regulatory framework may not be relevant for passively managed schemes.
SEBI says, "Existing AMCs having both active and passive schemes, will have the option to hive off respective passive schemes, if they so desire, to a different group entity, thereby resulting in management of active and passive schemes by separate AMCs under a common sponsor. If they choose to continue the passively managed schemes within the existing AMCs under the existing MF Regulations, the relaxed disclosures and other regulatory requirements for the passive schemes based on indices that would be covered under the MF Lite framework would be applicable to them as well."
Investor-friendly and uniform norms for nomination facilities in the Indian securities market
To enhance investor convenience and introduce uniform standards for nomination facilities across the Indian securities market, the board has approved amendments to the SEBI (Mutual Funds) Regulations, 1996, and the SEBI (Depositories and Participants) Regulations, 2018.
These amendments empower SEBI to notify new norms, including increasing the maximum number of nominees to 10 from three and allowing nominees to act on behalf of incapacitated investors, with certain risk mitigation checks and balances.
It also allows simplification of the transmission process to nominees with minimal documentation and streamlines the transmission process for joint holders with minimal documentation.
SEBI says during the nomination process unique identifiers for nominees, such as PAN, passport number, or Aadhaar should be obtained.
Additionally, the board approved the introduction of consistent norms for nominations across demat accounts and mutual fund investments.
According to the new norms, nominees to whom investments are transmitted will act as trustees for the legal heirs of the investor. However, legal heirs of a deceased nominee will not be granted any rights.
In cases of joint holdings, the rule of survivorship will apply. There would be specific norms for the operation of accounts in the event of the death of the karta in a Hindu undivided family (HUF).
For joint demat accounts and jointly held mutual fund folios, the nomination will be optional. SEBI says adding for singly-held accounts and opt-out will require due confirmations as may be specified.
Creditors' claims will take precedence over the transmission of assets to nominees if previously pledged. SEBI will provide guidelines for providing, changing, and ensuring the integrity, authenticity, and verifiability of nominations.
There will be a provision for acknowledging nominations and maintaining records. "No limit on the number of times a nominee can be changed. Information on nomination details will be provided to the investor. The apportionment of assets to surviving nominees will be clarified. Option to specify guardians for minor nominees will be available," SEBI says.
