FATF lauds India’s efforts to fight black money

The move would help India get greater support from international authorities in its fight against black money and check the illicit flow of funds from and to the country

In a major boost to measures being taken by India against money laundering and terror financing activities, the Financial Action Task Force (FATF) today said the country has substantially addressed the deficiencies in its regulatory framework and has become largely compliant with global standards in this regard.


FATF is an inter-governmental body that sets standards, and develops and promotes policies to combat money laundering and terrorist financing for countries across the world.


With a substantial improvement in India’s regulatory provisions, FATF has also decided to remove the country from its regular follow-up process for determining its compliance to anti-money laundering and countering financing of terrorism (AML/CFT) regulations.


The move would help India get greater support from international authorities in its fight against black money and check the illicit flow of funds from and to the country.


In its latest report on India, FATF said it has “recognised that India had made significant progress in addressing deficiencies identified in its mutual evaluation report (of June 2010) and decided that the country should be removed from the regular follow-up process”.


India was earlier placed in the regular follow-up process for mutual evaluation purposes because of partially compliant ratings on certain core and key recommendations.


“Since the publication of the mutual evaluation report (in June 2010), India has been reporting back to the FATF on a regular basis on the progress made in the implementation of its Action Plan to strengthen India’s AML/CFT System.


“India has made significant progress with regard to the implementation of this action plan,” FATF said.


Among various improvements in the past three years, India has rectified “nearly all of the technical deficiencies identified with respect to the criminalisation of money laundering and terrorist financing and the implementation of effective confiscation and provisional measures”.


IDBI Tax Saving Fund: Should you go for it?

There are over 50 tax-saving mutual fund schemes to choose from. Considering the lock-in period of three years, choosing a scheme with a proven track record would make better sense

IDBI Mutual fund plans to launch an open-ended Equity Linked Savings Scheme (ELSS)—IDBI Tax Saving Fund. The scheme would offer income tax (I-T) benefits under Section 80C of the I-T Act, 1961. The objective of the scheme as mentioned in the offer document is to “provide investors with opportunities for capital appreciation and income along with the benefit of income-tax deduction on their investments.” Investments in this scheme would be subject to a statutory lock-in of three years from the date of investment to be eligible for I-T benefits under Section 80C. The scheme would invest 80%-100% in equity assets and the rest in debt securities. There are over 50 tax-saving mutual fund schemes to choose from. The only distinguishing factor is the performance and track record of the schemes, something which IDBI Mutual Fund lacks.


When it comes to choosing an ELSS, selecting the right scheme is crucial as your investment is locked-in for three years. Therefore, one needs to pick consistent performers. In our cover story, (Read: Tax Saving Tricks you don’t want to miss in 2013) we have analysed the performance of ELSS schemes and have picked the best performers. But apart from choosing the right scheme, when you invest is crucial. Many savers anxiously invest in these schemes between January and March each year. As with all equity investments, one should invest systematically over the year. When investing in such schemes, one should look at a long-term horizon spanning five years or more, even though the lock-in is three years. Compared to other tax-saving investments, ELSSs have done much better over such long periods with systematic investments.


IDBI Mutual Fund at present has just one actively managed equity diversified scheme—IDBI India Top 100 Equity. Launched in May 2012, the scheme has a track record of little over a year. Over the past year the scheme has delivered a return of 13.76% whereas the S&P BSE Sensex has delivered a return of 10.23% over the same period. Though the scheme has performed well, it does not have a long-term track record.


According to the offer document, the new scheme “would be geared towards constructing a well diversified portfolio of stocks without bias towards sector or market capitalization to generate opportunities for long-term growth in capital. The portfolio will seek to have a mix of all market capitalization segments (large-cap, mid-cap and small-cap) in varying proportions.” The performance of the scheme would be benchmarked to the S&P BSE 200 index. V Balasubramanian, who has over 14 years experience in the mutual fund industry and 16 years in banking, will be managing the scheme.


New Purchase – Rs500 and in multiples of Rs500

Additional purchase – Rs500 and in multiples of Rs500


Systematic Investment Plan (SIP)

Monthly option -- Rs500 per month for a minimum period of 12 months or Rs1,000 per month for a minimum period of six months

Quarterly option – Rs1,500 per quarter for a minimum period of four quarters


Annual recurring expenses: Up to 2.70% p.a. of the daily net assets.  Depending on inflows from beyond top 15 cities, expenses will not exceed 3.00% p.a. of the daily net assets.


MFs to get single SRO, AMCs access to exchanges, courtesy SEBI
SEBI Board in its meeting approved new norms for buyback, creating a single SRO for mutual fund distributors and allow AMCs and distributors access to stock exchanges 
Market regulator Securities and Exchange Board of India (SEBI) on Tuesday approved setting up of a single self-regulatory organisation (SRO) for mutual fund (MF) distributors while allowing asset management companies (AMCs) to trade directly in the debt segments of exchanges.
The SEBI Board, which met today in Mumbai, said, “ order to facilitate the recognition of single SRO for distributors of mutual fund products and to avoid delay, it has been decided to have a cut off time for accepting applications for being recognised as SRO.”
The Board also approved AMCs managing schemes of mutual funds to take membership of debt segment of stock exchanges under 'proprietary trading member' (PTM) category. However, SEBI said, this (the membership) will be only to undertake trades directly on behalf of such schemes managed by the AMCs.
Appointment of custodian for mutual funds from the same group
Presently, mutual funds are not allowed to appoint a custodian belonging to the same group, if the sponsor of the mutual fund or its associates hold 50% or more of the voting rights of the share capital of such a custodian or where 50% or more of the directors of the custodian represent the interests of the sponsor or its associates.
The Board has decided that the custodian in which the sponsor of a mutual fund or its associates are holding 50% or more of the voting rights of the share capital of the custodian, would be allowed to act as custodian subject to fulfilling the following conditions... 
(a) the sponsor should have net worth of at least Rs20,000 crore at all points of time, 
(b) 50% or more of the directors of the custodian shall be those who do not represent the interests of the sponsor or its associates, 
(c) neither the custodian nor the asset management company of a mutual fund shall be a subsidiary of each other, 
(d) no person shall be a director of both the custodian and the asset management company of a mutual fund and 
(e) the custodian and the asset management company of a mutual fund shall sign an undertaking that they will act independently of each other in their dealings with the schemes.
Membership to exchanges for MF distributors
SEBI Board decided to allow mutual fund distributors to take limited purpose membership of stock exchange with lesser financial and compliance burden to use infrastructure of the exchanges for distribution and redemption of mutual fund units.
To reduce the financial and compliance burden on these limited purpose members requirements such as SEBI registration, compliance as member of a stock exchange, paid up capital and base minimum capital would not be applicable. However, stock exchanges may prescribe suitable eligibility criteria in this regard including net worth requirements, membership fee etc. This limited purpose membership would be granted based on AMFI Registration Number (ARN), granted to mutual fund distributor by Association of Mutual Funds in India (AMFI). 
Further to address the possible risk of default by these limited purpose members, they will not be allowed to handle pay in and pay out of funds as well as units on behalf of investor. Pay in and pay out of funds and units would be directly from or to the account of the investors, SEBI said. 
Companies to achieve minimum 50% of target amount under buyback
SEBI Board has increased the mandatory minimum buyback to 50% from 25% of the amount earmarked for this purpose. If the company fails in the mandatory buyback of 50% of the target amount, then SEBI said it would forfeit the amount in the escrow account to a maximum of 2.5% of amount earmarked. Companies will have to create an escrow account with an amount of at least 25% of the money earmarked for buyback. The maximum buyback period is also reduced to six months from 12 months. Here are the new norms for buyback...
(i) The mandatory minimum buy-back has been increased to 50% of the amount earmarked for the buy-back, as against existing 25%, failing which amount in the escrow account would be forfeited subject to a maximum of 2.5% of the total amount earmarked.
(ii) The maximum buy-back period has been reduced to six months from 12 months.
(iii) The companies shall create an escrow account towards security for performance with an amount equivalent to at least 25% of the amount earmarked for buy-back.
(iv)The company shall not raise further capital for a period of one year from the closure of the buy-back except in discharge of subsisting obligations as against the existing six months.
(v) The company shall not make another buy-back offer within a period of one year from the date of closure of the preceding offer.
(vi)The disclosure requirements have been rationalized requiring disclosure of the shares bought back on a cumulative basis on the website of the company and the stock exchange, only on a daily basis instead of the current requirement of disclosure on daily, fortnightly and monthly basis. 
(vii) The companies can buy-back 15% or more of capital (paid-up capital and free reserves) only by way of a tender offer.
(viii) Procedure for buy-back of physical shares (odd-lot) has been modified which includes creation of separate window in the trading system for tendering the shares, requirement of PAN/Aadhaar for verification, etc.
(ix) The companies are permitted to extinguish shares bought back during the month, within fifteen days of the succeeding month subject to the last extinguishment within seven days of the completion of the offer.
(x) The promoters of the company shall not execute any transaction, either on-market or off-market, during the buy-back period.
New norms for angel investors
Following Budget announcement, SEBI in its Board meeting provided a framework for registration and regulation of angel pools under a sub-category ‘Angel Funds’ under Category I- Venture Capital Funds. Here are the features of this new amendment...
‘Angel Funds’ shall be included in the definition of “Venture Capital Funds” under the 
SEBI (Alternative Investment Funds) Regulations, 2012.
Individual angel investors shall be required to have early stage investment experience/ experience as a serial entrepreneur/ be a senior management professional with 10 years’ experience. They shall also be required to have net tangible assets of at least Rs2 crore. Corporate angel investors shall be required to have Rs10 crore net worth or be a registered AIF/VCF.
Angel Funds shall have a corpus of at least Rs10 crore (as against Rs20 crore for other AIFs) and minimum investment by an investor shall be Rs25 lakh (may be accepted over a period of maximum three years) as against Rs1 crore for other AIFs. Further, the continuing interest by sponsor/manager in the Angel Fund shall be not less than 2.5% of the corpus or Rs50 lakh, whichever is lesser.
For ensuring investments are genuine angel investments, angel funds shall invest only in investee companies which:
o are incorporated in India and are not more than three years old; and
o have a turnover not exceeding Rs25 crore; and
o are unlisted, and 
o are not promoted, sponsored or related to an industrial group whose group turnover is in excess of Rs300 crore, and
o has no family connection with the investors proposing to invest in the company. 
Further, investment in an investee company by an angel fund shall be not less than Rs50 lakh and not more than Rs5 crore and shall be required to be held for a period of at least three years.
Listing of start-ups and SMEs without an IPO
Lack of exit opportunities for existing investors and restricted access to new investors is one of the problems faced by start-ups and small and medium enterprises (SMEs). With a view to provide easier exit options for informed investors like angel investors, venture capital funds (VCFs) and private equities (PE) funds to provide better visibility, wider investor base and greater fund raising capabilities to such companies, the Board approved the proposal to amend the SEBI (ICDR) Regulations to permit listing of start-ups and SMEs in Institutional Trading platform (ITP) without having to make an initial public offering (IPO). 
Such companies eligible to be listed on this “Institutional Trading Platform” shall be accessible for investment to the informed investors only. Therefore, the minimum amount for trading or investment on the ITP will be Rs10 lakh. These companies shall be exempted from the requirements of rule 19(2)(b) of SC(R)R 1957 under which companies have to offer up to 25% of its shareholding to public through an offer document in order to get listed. Therefore, the listing can be done without an IPO and the expenses associated with it. While such companies are listed on the ITP they will not be permitted to raise capital though they can continue to make private placements, SEBI said.
Listing on ITP by start-Ups and SMEs is expected to offer their existing investors better chances to find alternate buyers than if they search using their own network in the investment community. Standardized norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms will be prescribed, the market regulator said in a statement. 
According to the new norms, an investment beyond 10% will be considered a foreign direct investment (FDI). Any investment by investors must not be less than Rs25 lakh, SEBI said.


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