New Delhi:
Market regulator Securities and Exchange Board of India (Sebi) announced a number of decisions to re-energise the mutual fund industry and bring reforms in the primary market Thursday.
Here are 10 ways how Sebi's announcement will affect you:
1) More transparency in IPOs: Companies would not be allowed to raise more than 25 per cent of the total initial public offer (IPO) size for "general corporate purposes." The move will help bring in transparency and check possible misuse of funds raised by companies through IPO, given the vague definition of the terms. Currently, there is no cap for funds raised for "general corporate purposes."
2) For companies coming out with IPOs, they would now have to disclose the price band at least five working days before the opening of the bidding, as against the current norm for two days.
3) Sebi has decided that a minimum lot of shares would be assured to retail investors in IPOs. It also approved e-IPO procedure for electronic bidding in public offers to help investors across the country bid for shares in a cost-effective manner.
4) Non-retail investors cannot withdraw or reduce their price or offer size in IPOs, but can enhance the same, as is the rule for retail investors.
5) In order to encourage long-term holding, SEBI has decided that exit loads -- the penalties investors have to pay when exiting a fund early -- would be plowed back into the funds, benefitting the remaining customers. Asset management companies would be allowed to charge additional expense ratio (the charge levied by fund houses towards fund management fees and other expenses) for catering beyond a threshold limit in the smaller cities. Distributors will be able to sell more in smaller towns, but investors will have to pay more.
6) Although Sebi did not re-introduce the entry fee, as widely expected, it would allow greater flexibility in the use of total expense ratios, which previously had to be categorised and reported to regulators. Fund managers will now be given freedom to distribute their costs, which essentially would mean they can pass on bigger fees to distributors.
7) Sebi decided that any service tax would be charged to ultimate investor, not to the asset management company (AMC) as is the practice at present. This will make MFs expensive.
8) Indian companies will be allowed to achieve the minimum 25 per cent public shareholding rule through the allocation of bonus or rights shares. Many companies have so far failed to meet the requirement due to poor appetite for equities in a slowing economy and a sharp fall in the share prices of some companies.
9) There are about 162 companies in India who have promoter shareholding more than the permitted limit. Hence, now all these companies have to comply with minimum public shareholding norms by June 2013.
10) "With these instruments, many of the Indian subsidiaries of MNCs who were planning delisting may give up their plans of delisting," Jagannadham Thunuguntla, Strategist & Head of Research at SMC Global said.
(With inputs from Thomson Reuters and PTI)
Here are 10 ways how Sebi's announcement will affect you:
1) More transparency in IPOs: Companies would not be allowed to raise more than 25 per cent of the total initial public offer (IPO) size for "general corporate purposes." The move will help bring in transparency and check possible misuse of funds raised by companies through IPO, given the vague definition of the terms. Currently, there is no cap for funds raised for "general corporate purposes."
2) For companies coming out with IPOs, they would now have to disclose the price band at least five working days before the opening of the bidding, as against the current norm for two days.
3) Sebi has decided that a minimum lot of shares would be assured to retail investors in IPOs. It also approved e-IPO procedure for electronic bidding in public offers to help investors across the country bid for shares in a cost-effective manner.
4) Non-retail investors cannot withdraw or reduce their price or offer size in IPOs, but can enhance the same, as is the rule for retail investors.
5) In order to encourage long-term holding, SEBI has decided that exit loads -- the penalties investors have to pay when exiting a fund early -- would be plowed back into the funds, benefitting the remaining customers. Asset management companies would be allowed to charge additional expense ratio (the charge levied by fund houses towards fund management fees and other expenses) for catering beyond a threshold limit in the smaller cities. Distributors will be able to sell more in smaller towns, but investors will have to pay more.
6) Although Sebi did not re-introduce the entry fee, as widely expected, it would allow greater flexibility in the use of total expense ratios, which previously had to be categorised and reported to regulators. Fund managers will now be given freedom to distribute their costs, which essentially would mean they can pass on bigger fees to distributors.
7) Sebi decided that any service tax would be charged to ultimate investor, not to the asset management company (AMC) as is the practice at present. This will make MFs expensive.
8) Indian companies will be allowed to achieve the minimum 25 per cent public shareholding rule through the allocation of bonus or rights shares. Many companies have so far failed to meet the requirement due to poor appetite for equities in a slowing economy and a sharp fall in the share prices of some companies.
9) There are about 162 companies in India who have promoter shareholding more than the permitted limit. Hence, now all these companies have to comply with minimum public shareholding norms by June 2013.
10) "With these instruments, many of the Indian subsidiaries of MNCs who were planning delisting may give up their plans of delisting," Jagannadham Thunuguntla, Strategist & Head of Research at SMC Global said.
(With inputs from Thomson Reuters and PTI)
