SEBI tightens exposure norms for mutual funds, provides exit opportunity for dissenting investors
SEBI Board also decided to provide an exit offer to dissenting investors in a listed company, if promoters are found diverting from stated usage of funds raised through public offer
Market regulator Security and Exchange Board of India (SEBI) has decided to tighten exposure norms for mutual funds for investments in riskier debt instruments.
The SEBI Board, in its meeting at Mumbai, also decided to provide an exit offer to dissenting investors in a listed company, if promoters are found diverting from stated usage of funds raised through public offer. The Board has also approved new norms for issuance and listing of green bonds.
"The Board deliberated the proposals relating to review of prudential limits at issuer and sector level and the need to introduce such limits for group level exposure. It considered that review of single issuer, sector level exposure limit and introduction of group level exposure limits for investment in debt instruments would mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades, put mutual funds in a better position to handle adverse credit events and provide mutual fund investors with enhanced diversification benefits," the market regulator said in a release.
Here are the decisions taken by SEBI to reduce exposure of MFs...
Amend SEBI (Mutual Funds) Regulations, 1996 to merge credit exposure limits for single issuer of money market instruments and non-money market instruments at the scheme-level.
Amend SEBI (Mutual Funds) Regulations, 1996 so that single issuer limit is reduced to 10% of NAV extendable to 12% of NAV after trustee approval.
Reduce exposure limit to a single sector from the current 30% of NAV to 25% of NAV.
Reduce additional exposure limit provided for Housing Finance Companies (HFCs) in finance sector from 10% of NAV to 5% of NAV.
Introduce group level limits for debt schemes through issuance of appropriate circular and the ceiling be fixed at 20% of NAV extendable to 25% of NAV after trustee approval. A group, for this purpose, refers to group as defined under section 2 (mm) of SEBI (Mutual Funds) Regulations, 1996 and includes an entity, its subsidiaries, fellow subsidiaries, its holding company and its associates. All Government owned PSU entities, PFI & PSU banks will be excluded from group level limits.
Trustees to review exposure of a mutual fund, across all its schemes, towards individual issuers, group companies and sectors. Trustee should satisfy themselves on the levels of exposure and confirm the same to SEBI in the half-yearly trustee report.
a. The aforesaid investment restriction shall be applicable to all fresh investments by a new scheme or an existing scheme.
b. Appropriate time shall be given for AMC to confirm that such mutual fund schemes confirm to the aforesaid investment restrictions.
The SEBI Board decided to provide an exit opportunity to dissenting shareholders under the Companies Act, 2013. The Act provides that a company, which has raised money from public through prospectus and still has any un-utilised amount out of the money so raised, shall not change its objects for which it raised the money through prospectus or vary the terms of a contract referred to in the prospectus unless a special resolution is passed by the company.
The Act also provides that dissenting shareholders, shall be those shareholders who have not agreed to the proposal and they shall be given an exit opportunity by promoters and shareholders having control over the company, in such manner and conditions as may be specified by SEBI by making regulations in this behalf.
Following a consultative process, the Board approved the proposal to amend the SEBI (ICDR) Regulations, 2009 for laying down the framework in this regard, the market regulator said.
SEBI also approved disclosure norms for green bonds. The financing needs of renewable energy space in the country require new channels to be explored, which can provide not only the requisite financing, but may also help in reducing the cost of the capital. Further, India's Intended Nationally Determined Contribution (INDC) document puts forth the stated targets for India's contribution towards climate improvement and following a low carbon path to progress. The document also impresses upon the need of financing needs for achieving the stated goals.
The Board considered and approved the proposal for disclosure requirements for issuance and listing of Green Bonds, which have been formalised after consultation with the public, SEBI said.
The SEBI Board also considered and approved a proposal for introduction of primary market debt offering through private placement on electronic book. The key benefits of such an electronic book inter-alia, are improvement in efficiency and transparency of the price discovery mechanism vis-à-vis over-the-telephone market and reduction of cost and time taken for such issuance, SEBI added.