Norms for MFs, insurers participation in preference issues eased

It has been decided to exempt insurance companies and MFs from the provisions of SEBI (ICDR) Regulations relating to sale and lock-in of their pre-preferential shareholding in the issuer company, SEBI chairman UK Sinha said after a board meeting on 29.1.2012
Market regulator Securities and Exchange Board of India (SEBI) on Sunday relaxed investment norms by waiving the six-month lock-in period for insurance companies and mutual funds (MFs) participating in preferential allotment of shares, reports PTI.

It has been decided to exempt insurance companies and MFs which are broad-based investment vehicles representing the interests of the public at large from the provisions of SEBI (ICDR) Regulations relating to sale and lock-in of their pre-preferential shareholding in the issuer company, SEBI chairman UK Sinha said after a board meeting here today.

As a matter of liberalisation, we have taken this measure, if there is broad-based investor base, for example the mutual funds and insurance companies which do not represent the interest of one particular investor, they have group of investors backing them and they take their decisions on professional consideration… why should they be debarred from this facility.

Even they have bought or sold in the last six months they will be permitted (to participate in another preferential allotment). So, they have been given this special exemption, Mr Sinha added.

As per the SEBI regulations (Issue of Capital and Disclosure Requirements (ICDR), an insurance company or a MF cannot participate in preferential allotment transactions before the six-month cooling off period.

Also, allottees are required to lock in their entire holdings for six months under the present norms.

The board has decided to enhance the minimum investment amount of clients under the portfolio management schemes (PMS) to Rs25 lakh from Rs5 lakh at present. This would apply to new customers.

PMS regulations are light touch regulation and SEBI was worried that retail investors are being drawn into it whereas their interest are not as tightly protected or guarded as it is in mutual fund regulation, Mr Sinha said.

The changes would be brought about by amending the SEBI (Portfolio Managers) Regulations, 1993.

Further, SEBI has said that Asset Management Companies (AMCs) would be responsible for accuracy and truthfulness of the advertisements.

AMCs (which float MFs) shall be responsible for the accuracy, truthfulness, fairness of the advertisement, said a statement issued after the SEBI board meeting here.

The market regulator further said that SEBI (Mutual Fund) Regulations, 1996 would be amended and the advertisement code would be modified to broaden the definition of advertisement to include all forms of communication that may influence investment decisions of an investor.

These steps, SEBI added, were aimed at providing flexibility to AMCs in issuing true and fair advertisements with meaningful disclosure to investors… Advertisement Code shall be amended and made principle based as far as possible.

AMCs, SEBI said, will be required to accord a fair treatment to all investors, in all schemes.

The capital market regulator has brought down limit for calculation of mark-to-market fair valuation to 60 days from existing 91 days.

In case debt and money market securities are not traded on a particular valuation day then valuation through amortization basis shall be restricted to securities having residual maturity of up to 60 days (currently 91 days), provided such valuation shall be reflective of the realizable value or fair value of the securities, Mr Sinha said.

So if there are any securities where the balance period is more than 60 days so in those cases you will have to have mark-to-market valuation. Earlier this stipulation was 91 days, he said.

This will make NAV more realistic which means risk people might be taking for inter-scheme to that extent it will be curbed, he added.