Sebi board gives approval for new asset class, MF Lite regulations

The Securities and Exchange Board of India (Sebi) on Monday approved the introduction of a new asset class, designed to offer greater flexibility to fund managers and target investors with a higher risk appetite. The markets regulator also cleared the liberalised Mutual Funds Lite (MF Lite) framework, aimed at fund houses that solely launch passively managed schemes.

Though the Sebi board, which includes representatives from the finance ministry and the Reserve Bank of India, during its meeting on Monday did not take up allegations of “conflict of interest” levelled against Chairperson Madhabi Puri Buch by the main Opposition Congress, it did discuss discontent among employees and the withdrawal of a press release concerning the matter, sources said.

In another significant move, the board reduced the timeframe for rights issues from the current 317 working days to just 23. This is intended to allow listed companies to raise capital more quickly from their existing shareholders.

The Sebi board also moved to amend insider trading regulations, clarifying the definitions of “relatives” and “connected persons.” Tightened disclosure requirements for offshore derivatives instruments (ODIs) and segregated portfolios were also introduced, aimed at closing regulatory gaps related to foreign portfolio investors (FPIs).

The new asset class, dubbed “Investment Strategies,” is aimed at high-risk investors and seeks to bridge the gap between mutual funds (MFs) and portfolio management services (PMS). The minimum ticket size for this product will be Rs 10 lakh.

The new product also aims to curtail the proliferation of unregistered and unauthorised investment schemes/entities, which often promise unrealistic high returns and exploit investors’ expectations for better yields, leading to potential financial risks,” said Sebi, explaining the rationale for launching the new asset class.

The MF Lite framework will feature relaxed requirements around sponsor eligibility, including net worth, track record, and profitability, as well as changes to the responsibilities of trustees and the approval process. “The framework intends to promote ease of entry, encourage new players, reduce compliance requirements, increase penetration, enhance market liquidity, facilitate investment diversification, and foster innovation,” Sebi said.

Monday’s board meeting in Mumbai also saw Sebi announce a host of reforms aimed at streamlining processes. The shorter rights issue timeline is expected to make this route more attractive than the preferential allotment option, which takes 40 working days.

In addition, the Sebi board approved a streamlined filing system for listed companies. Under the new system, companies will be required to file relevant reports and documents with just one stock exchange, which will then disseminate the information to the other exchange automatically. The timeline for making post-board meeting stock exchange disclosures was also eased.

Finally, Sebi’s board approved a new framework for “Informal Guidance,” which allows market participants to seek legal advice directly from the regulator.