Sebi scraps entry load for MFs, cuts fees of intermediaries

The Securities and Exchange Board of India has rationalised disclosure norms for rights issues. The market regulator has allowed investors to choose commission payable to mutual fund distributors and has cut fees for financial intermediaries by 50%. It has also approved the concept of anchor investor. CNBC-TV18 was the first to report these changes on June 16.

The Sebi board which met today approved the concept of anchor investor, which are long-term strategic investors. An anchor investor has to be a qualified institutional buyer and can subscribe up to 30% of the institutional quota. The promoter group cannot be an anchor investor. There will also be a 30-day lock-in period for anchor investors.

On rights issue:

The Sebi board has also rationalised disclosure norms for rights issues. Henceforth, there will be no preferential issue for superior voting rights. Also, no listed company can issue shares with superior rights.

On mutual fund schemes:

Mutual fund investors have a reason to cheer. There will be no entry load on any mutual fund schemes from now on. Distributors will now have to disclose commission for schemes. In a landmark move, mutual fund investors will now decide on the commission payable to distributors.

Fee cut for intermediaries:

The board has decided to rationalise the fees charged by intermediaries. It plans to cut fees for financial intermediaries by 50%. Broker fees for debt deals have been cut to Rs 2.5 per Rs 1 crore of turnover.

On initial public offerings:

From here on, companies planning an initial public offering will have to list on at least one national exchange.

Also see:

Sebi gives more power to investors: An analysis

SEBI's MF move to benefit retail investors: Religare MF

Here is a verbatim transcript of Sebi Chairman CB Bhave's address. Also see the accompanying video.

This is to give you a brief summary of the decisions that were taken by the board today. The board decided today that any unlisted company making an IPO will have to list in at least one of the stock exchanges having nationwide trading terminals. This will provide a liquid trading platform to investors in securities of the company.

The board also approved the concept of an 'anchor investor'. The concept will work like this. The anchor investor will have to be a QIB, what we call the Qualified Institutional Buyer. He can get up to 30% of the quota that is reserved for a QIB. In effect, about 15% of the issue can be given to the anchor investor.

The issuer will carry out a bidding process one-day prior to the actual issue opening in order to decide the anchor investor for allotment. The anchor investor will have to bring in a margin of 25% on application. Immediately after the allotment is finalised, he will have to bring in the remaining 75% within two days.

There will be a firm allotment to this anchor investor and therefore there will be a lock-in of 30 days after the issue gets listed. No person related to the promoter, promoter group or the book running lead managers will be allowed to apply as an anchor investor.

This provision has been made in response to a request from issuers. A number of issuers found that some investors were prepared to come in with a prior commitment which would enhance their ability to sell the issue and generate more confidence in the minds of retail investors.

At present, there is a requirement that shares offered for sale should be held for a period of one-year. There was a representation from the market that if those shares are held in the form of convertibles or depository receipts, then the period for which the convertibles or depository receipt has been held should also be taken into account. The board has agreed with this request.

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The board decided that no listed companies can issue shares with superior voting rights. This is basically to avoid possible misuse by the persons who are in control of the company.

The board also decided to rationalize the disclosure norms for rights issue. One of the representations from the market was that the disclosure documents for rights issues tends to be extremely bulky because it is treated like a public issue, whereas that company is already listed and has continuing disclosure requirements. Investors know not only the price of the shares but also know the continuing disclosures. So, is it possible for us to simplify and reduce this document?

The board considered the question of the existing manner of payment to the mutual fund advisors by investors and decided that there will be no entry load for any schemes. The investor will decide the commission that he is to pay to the distributor directly. It will not be deducted by the fund and then paid to the distributor. If the investor is making an application for Rs 100 that means the entire Rs 100 will get invested. There will be no deduction from that because there is no entry load. The board also decided that if the distributor is selling different schemes then he must disclose to the investor as to what commission he is getting for different schemes. This will avoid the conflict of interest and will allow investors to understand why a particular scheme is being recommended to them.

The board decided to rationalize the fees that are charged to intermediaries in the market. These intermediaries include brokers, derivative trading members including the currency segment, mutual fund's filing fee, foreign institutional investors, sub-accounts of foreign institutional investors, foreign venture capital funds, and custodians of securities. Roughly the reduction is about 50% of what the existing fees are.