To guarantee that India’s fund managers manage retail investors’ money more prudently, the Securities and Exchange Board of India tightened asset management company, or AMC, regulations on Tuesday. Sebi also reduced the investment ticket size in real estate investment trusts (REITs), relaxed investment criteria for alternative investment funds (AIFs), and tightened directorship standards for listed businesses in order to improve corporate governance standards.
At the moment, AMCs are required to invest 1% of the amount generated in a new fund offer or Rs. 50 lakh, whichever is less, as skin in the game in MF schemes. The country’s markets regulator revised the country’s mutual fund regulations, requiring AMCs to invest a certain amount of money from their own accounts whenever a mutual fund scheme is formed. Sebi stated that AMCs will be required to make such an investment commitment as “skin in the game” in proportion to the varied degree of risk associated with the MF scheme, which effectively indicates that the greater the chance of loss, the greater the AMC’s minimum investment contribution must be.
Sebi’s action will not only increase AMCs’ caution when launching mutual fund schemes, but will also help limit mis-selling and ensure that fund managers allocate public money more prudently to minimise risk of loss.
Sebi’s new step is significant in light of several instances over the last three years in which numerous retail mutual fund investors have suffered losses on their net asset values (NAVs) as a result of investments in high-risk products or excessive exposure to a single industry.
Additionally, the markets regulator has opened up the unlisted market to all classes of investors who are recognised as well-informed.
The markets regulator has created the notion of “accredited investors,” who will be permitted to invest in alternative investment funds such as private equity, venture capital, social schemes, and hedge funds without being required to adhere to minimum investment requirements.
Accredited investors will have the option of investing in investment products with a reduced minimum investment amount than that required by the AIF rules and portfolio manager requirements.
Accredited investors are people who are deemed to be knowledgeable or well-advised regarding investment items. Accreditation agencies will be recognised as subsidiaries of depositories, stock exchanges, and a few other designated organisations that can confer accreditation status and issue accreditation certificates to accredited investors.
Sebi also relaxed investing rules for real estate investment trusts (REITs), which have grown in popularity over the last two years.
Sebi amended existing regulations by revising the minimum subscription and trading lot requirements for publicly traded REITs and InvITs. Sebi stated that the minimum application value will be reduced from Rs. 50,000 to between Rs. 10,000 and Rs. 15,000, and the revised trading lot will be one unit. Sebi’s action aims to increase liquidity for investors in real estate investment trusts and infrastructure investment trusts.
Sebi also tightened the directorship qualifications for listed companies in an effort to boost corporate governance standards. Sebi stated that any appointment, re-appointment, or removal of an independent director must be approved by shareholders via a special resolution.
Sebi has changed the process by which listed corporations’ nomination and remuneration committees pick independent directors more public, and expanded disclosures regarding the abilities required for appointment of any individual as an independent director in a listed company will be required.
Sebi stated that at least two-thirds of the NRC’s directors must be independent. Additionally, at least two-thirds of the members of any listed company’s audit committee must be independent directors, and all related party transactions must be approved by the audit committee’s independent directors.
Additionally, shareholder consent will be required for the appointment of all directors, and the business must include the appointment on the agenda of the next general meeting, or within three months after the appointment, whichever is earlier, according to Sebi.
Smrutirekha Bhoi