A major reform announced by the Board relates to mutual fund expenses. The market regulator approved a comprehensive overhaul of the Mutual Fund Expense Ratio framework, including a reduction in base expense ratio limits across categories
Mumbai:The Securities and Exchange Board of India (SEBI) on Wednesday approved a series of far-reaching regulatory reforms aimed at simplifying market regulations, lowering transaction costs and improving cost transparency, measures that are expected to boost investor participation across mutual funds, equity and debt markets.
At its board meeting held in Mumbai, SEBI Chairman Tuhin Kanta Pandey underlined the need for simplifying regulatory language and improving ease of understanding, particularly while reviewing stock broker regulations.
A major reform announced by the Board relates to mutual fund expenses. The market regulator approved a comprehensive overhaul of the Mutual Fund Expense Ratio framework, including a reduction in base expense ratio limits across categories.
The SEBI approved measures to encourage a transparent break-up of costs charged by mutual funds and to mandate disclosure of all the components of such charges.
SEBI, however, revised its earlier proposal to cap the brokerage that mutual funds pay, raising the limit to 6 basis points from 2 bps for equity cash transactions, after industry feedback that a sharp reduction could curb fund managers’ ability to pick stocks.
Fund managers currently pay up to 12 bps as brokerage to buy and sell stocks in their portfolios.
With the new cost structure for mutual funds, the average charges will fall by 10 to 15 bps, according to a SEBI statement.
The revised framework excludes statutory and regulatory levies, such as the Securities Transaction Tax (STT), Goods and Services Tax (GST), stamp duty, SEBI fees, and exchange charges, from the base expense ratio. These levies will now be charged strictly on actuals, over and above permissible limits, significantly improving cost transparency for investors.
SEBI has reduced the compliance requirements for small brokers and defined new market practices such as algorithmic and proprietary trading, giving itself more power to regulate them.
The regulator also altered the lock-in requirements for existing shareholders in public issues, excluding large shareholders who have the ability to influence company decisions.
Under the new rules, lock-in requirements for shares before a company goes public will be automatically enforced even if pledges are invoked or released. This will address delays in the listing process, SEBI said.
“With SEBI approving the revision of lock-in rules for pledged pre-IPO shares, a major operational challenge faced by many companies, especially where shares are pledged to multiple lenders, has now been addressed,” said Makarand Joshi, founder partner of corporate compliance firm MMJC Associates.
It also said issuing companies need to upload a summary of key disclosures as part of public offer papers to help improve investors’ understanding of the process.
In another significant move aimed at deepening the corporate bond market, SEBI approved amendments allowing debt issuers to offer incentives in public issues to select categories of investors.
Issuers of non-convertible securities will now be permitted to provide incentives such as additional interest or issue price discounts to categories including senior citizens, women, armed forces personnel, retail individual investors and other categories as may be specified.
The reforms are expected to enhance cost transparency, reduce frictional costs and encourage broader participation in mutual fund and debt markets.
The measures also reinforce SEBI’s broader objective of balancing investor protection with ease of doing business, while strengthening confidence in India’s capital markets.
SEBI approved steps to increase retail participation in debt issues by allowing issuers to offer additional incentives to women, retail and senior investors, among others.
Credit rating agencies will be allowed to rate unlisted debt securities subject to due risk management measures, Pandey said at a press conference after the regulator’s board meeting.
Incentives are first steps and debt market requires a number of steps to bring fixed income market to retail investors, Pandey said.
The regulator is also working to overhaul takeover code regulations, he said.
CONFLICT OF INTEREST FRAMEWORK DEFERRED
SEBI’s board deferred a decision on a panel report submitted last month, which deals with managing conflicts during investigations and drafting market policies.
The regulator said employee concerns and operational modalities require more deliberation.
The panel was formed after SEBI’s then chairperson Madhabi Puri Buch faced conflict of interest allegations from the now-defunct Hindenburg Research, which alleged that she had previously invested in offshore funds linked to the Adani group.
Both Buch and the Adani group had denied the allegations.