Impact of Mutual Funds & IPO norm changes by SEBI

SEBI Change

In order to increase reach of mutual funds and equity in every corner of country SEBI has made various changes related Mutual funds & IPO. Due to these changes investment in Mutual funds will be now costlier but at IPO side retail applicant in IPO with application amount less than 2 Lac will defiantly get allotment of shares in minimum quota. Apart from that e-IPO concept is also approved. This will give ease to investors by eliminating physical application procedures for IPO.

Let’s check out what changes are made by SEBI for Mutual Funds and IPO.

New Changes for Mutual Funds:-

(1) SEBI decided that any service tax (about 12%) would be charged to ultimate investor, not to the asset management company (AMC).

(2) As per SEBI entry load for MFs won’t be reintroduced.

(3) If the total inflows into an MF scheme from the “beyond top 15” cities are at least 30% of its total inflows, then these funds can charge 20 bps more as expense ratio. (the charge levied by fund houses towards fund management fees and other expenses)

(4)  SEBI will formulate new National Mutual Fund Policy.

(5)  SEBI also recommended to government to include Tax benefit to equity MF investors under the proposed Rajiv Gandhi Equity Savings Scheme (RGESS).

Impact of these changes:-

It is good that SEBI has not introduced entry load on MF but to impart additional load to increase reach of mutual fund is not good idea. Ultimately these changes will make mutual fund investment costlier by around 0.5%-1%.

SEBI recommendation for giving tax benefit to equity MF investor under RGESS scheme is good idea, to increase equity mutual fund participation but I feel impact of this will be minimal as it will be applicable to new investor only.

New Changes for IPO:-

(1) Assurance to Small retail investor to get allotment of share in minimum quantity for IPO.

(2) e-IPO procedure for electronic bidding in public offers to help investors across the country bid for shares in a cost-effective manner.

(3) SEBI also decided to fast-track clearance to public offer documents of companies and said it would frame clear rules for rejection of offer documents.

(4) The minimum application limit in IPOs has also been raised from Rs 5,000-7,000 to Rs 10,000-15,000

(5) 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.

(6) 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.

Impact of these changes:-

Assurance of share allotment is very good initiative & this will bring more retail investor for equity market through IPO way.

e-IPO & Fast track clearance for DHRP is also very good as this will make entire process faster & smoother for IPO.

Other proposed changes:-

Besides, SEBI has also decided to set up an SRO (Self Regulatory Organization) to look after the mutual fund distribution business. Also, the fund houses would have to follow a broader set of disclosure norms.

After discussions with RBI, IRDA and PFRDA, SEBI has decided to start and implement investment advisor regulation. Philosophy behind this (regulating investor advisers) is that if anybody is providing advice for a fee, they would be regulated. If somebody is not providing for a fee, they will not be regulated.”

Over all this steps will increase liquidity and participation in equity market & provide good amount regulation for equity & mutual fund market.

Do share your views on this.

Article by Shitanshu

Hi, I am Shitanshu. By Profession I am Engineer and working in the IT field. I am crazy about Finance and like to research on financial matters. I have written 80+ article on this blog. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

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