Mutual Funds
SEBI relaxes mutual fund exposure limit for housing finance companies

SEBI decided that an additional exposure not exceeding 10% of net assets of the scheme shall be allowed only to HFCs as part of financial services sector for prudential limits in debt oriented schemes

 
Mumbai: Providing more leeway for housing finance companies, market regulator Securities and Exchange Board of India (SEBI) has relaxed the investment limit for such entities in debt mutual funds, reports PTI.
 
The decision to relax the investment limit for housing finance companies (HFCs) was taken by SEBI at its board meeting held in October.
 
"... in light of the important role played by the housing finance companies (HFCs) in the housing sector, it has been decided that an additional exposure not exceeding 10% of net assets of the scheme shall be allowed only to HFCs as part of financial services sector for prudential limits in debt oriented schemes," SEBI said in a circular today.
 
The total investment in HFCs shall not exceed 30% of the net assets of the scheme.
 
SEBI said the relaxation would be subject to certain conditions such as that the securities issued by HFCs were rated 'AA' or above. Also, the HFCs should have been registered with the National Housing Bank (NHB).
 
In October, the market regulator had said the decision to relax investment limit was taken after taking into consideration the important role played by HFCs in fulfilling the social objective of increased home ownership and supporting the economy by creating demand for construction of new homes.
 
Certain debt mutual fund schemes, such as long-term Fixed Maturity Plans are a preferred route for the NBFC (Non-Banking Finance Company) sector to raise medium to long term funds at attractive rates.
 
Under the regulatory framework, NBFCs include HFCs.
 

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MFs allowed to levy brokerage, transaction costs but with limit

SEBI said mutual fund houses can levy brokerage and transaction costs, with a ceiling of 0.12% for cash market transactions and 0.05% for derivatives dealings

 
Mumbai: Market regulator Securities and Exchange Board of India (SEBI) has allowed mutual fund (MF) houses to levy certain amount of brokerage and transaction costs on investors with regard to execution of trades, reports PTI.
 
In a circular, the regulator said that fund houses can levy brokerage and transaction costs, with a ceiling of 0.12% for cash market transactions and 0.05% for derivatives dealings.
 
"The brokerage and transaction cost incurred for the purpose of execution of trade may be capitalised to the extent of 12 basis points and 5 bps for cash market transactions and derivatives transactions, respectively," SEBI said.
 
According to the regulator, any payment towards brokerage and transaction costs over and above prescribed limit would be borne by the asset management company (AMC) or by the trustee or sponsors.
 
Besides, mutual funds can charge additional expenses of up to 0.30% of daily net assets, if the new inflows from places other than to top 15 cities are 30% of the gross new inflows in the scheme, or are 15% of the average assets under management (year to date) of the scheme, whichever is higher.
 
SEBI said expenses charged under these clauses would have to be utilised for distribution expenses incurred for bringing inflows from such cities.
 
Among other measures, the fund houses would have to calculate the net asset value (NAV) of the scheme on daily basis and publish the same in at least two daily newspapers with nation-wide circulation.
 
Also, any exit load charged by the fund houses would have to be credited to back to the scheme.
 
This measure, along with capping of the total additional expenses at 0.2% in normal case, are expected to encourage long term holding, reduce churn and align the interests of the fund houses and distributors with that of the investors.
 
These particular steps would not result in any additional cost to the investors, but the provision for additional expenses of up to 0.3% for inflows from smaller cities could make the investments costlier at the investors' end.
 
In case of a fund of funds scheme, the total expenses of levied on the scheme would be capped at 2.50% of the daily net assets of the scheme.
 

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Policy decisions may cause loss for finding balance: Subbarao

Subbarao, who was the Finance Secretary between April 2007 to September 2008, said he had questioned, in 2007, the fixing of around Rs1,600 crore as spectrum fees by the DoT for pan-India telecom licence

 
New Delhi: Reserve Bank of India (RBI) Governor D Subbarao told a Delhi court that it cannot be said that the state had 'suffered a loss' in the 2G spectrum allocation in 2008 as in a policy decision the government has to make a balance even at the cost of sacrificing some revenue, reports PTI.
 
However, in the beginning of his deposition, he said that he had questioned, in 2007, the fixing of around Rs1,600 crore as spectrum fees by the Department of Telecom (DoT) for pan-India telecom licence.
 
"It is correct that while determining policy, Government has to make a balance between welfare maximisation and revenue maximisation. In this case if there was a sacrifice of some revenue, it cannot be said that Government suffered a loss," Subbarao, who was depositing as a prosecution witness in the 2G case, told the court while being cross examined by defence counsel.
 
Subbarao, who was the Finance Secretary from April 2007 to September 2008, told the court that by June 2008, it was agreed between the DoT and the Finance Ministry that start-up spectrum would not be charged and only spectrum beyond start-up spectrum would be charged.
 
"It is true that by June 2008, the position as indicated in the question was agreed upon between Ministry of Finance and the DoT. This agreement was reached after a series of discussion between the DoT and Ministry of Finance," he told Special CBI Judge OP Saini.
 
Subbarao further said that initially, the Finance Ministry had argued that entire spectrum, including start-up spectrum, should be charged but during the discussions, the DoT had said that charging for the entire spectrum would be problematic and "legally questionable" on a number of grounds. 
 
Later, during his cross examination by A Raja's lawyer Sushil Kumar, Subbarao said that in a meeting held on 4 July 2008, the then Finance Minister P Chidambaram and the former Telecom Minister had conveyed to the Prime Minister about an agreement between the DoT and the Finance Ministry.
 
During the recording of the statement, which concluded on Monday, Subbarao said that the view of Finance Ministry on the issue of spectrum pricing was that price must be "rediscovered" as it would be inappropriate to give licences on the price fixed in 2001-2002.
 
"The view of Ministry of Finance on the pricing of spectrum was that for licences being issued in 2007/08, the price must be rediscovered. It would be inappropriate to give licences and spectrum on prices discovered in 2001/02, in view of the increase in revenues of the telecom operators and also inflation in the intervening period," he said.
 
He said the "endeavour" of Finance Ministry was to maximise the revenues to the government but "since DoT had already issued letters of intent (LoIs) on January 10, 2008, the effort of Ministry of Finance was to see if the price for spectrum could be enhanced to reflect the current market prices." 
 
"We also negotiated an increase in spectrum usage charges." 
 
On being asked by the defence counsel about whether the government suffered any loss due to the issuance of 122 new Unified Access Service Licences (UASL) after the DoT and the Finance Ministry arrived at an agreed position on entry fee, Subbarao said, "there was certainly sacrifice of revenue." 
 
He told the court that after issuance of LoIs, there were several rounds of discussion between the Finance Ministry and DoT on the issue of spectrum pricing and discussions took place between Raja and then Finance Minister P Chidambaram on 29 May 2008 and 12 June 2008 respectively. 
 
Subbarao said he had written a letter to the then DoT Secretary DS Mathur on 22 November 2007 in wake of the presentation by Mathur in the Cabinet Secretariat on 20 November 2007 on the issues of spectrum policy and pricing.
 
"I wrote this letter to confirm if proper procedure was followed with regard to due financial diligence. I also questioned as to how the rate of Rs. 1600 crore, determined as far back as 2001, could be applied for licence given in 2007 without any indexation, let alone current valuation," he said.
 
He further said that during the discussions with the DoT, the Finance Ministry was told that auction of spectrum was not "feasible" for a number of reasons.
 
"The question then was how to maximise the revenue in a fair and transparent manner. It was then agreed that way of doing this would be to index the price discovered in 2001/02 to the changes between that year and 2007/08," he said.
 
He deposed that the Finance Ministry had argued that the methodology to be followed for allocation of spectrum and its pricing are issues that impinge on revenue as well as on the ultimate price paid by the consumer and therefore, these issues need to be discussed at the Group of Minister (GoM) level.
 
"Since DoT had earlier got these terms deleted from the original terms of reference, Ministry of Finance requested for inclusion of these two vital issues in the terms of reference of GoM," he told the court.
 

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