SEBI reduces investment cost for mutual fund investors

31 January 2008

Mumbai: The Securities and Exchange Board of India (SEBI) has decided to reduce cost of investment in mutual funds by doing away with the initial issue fee for close-ended schemes.
 
The Sebi board, which met in Mumbai yesterday, also cleared the draft proposal for listing of debt securities and eased disclosure norms for existing debt market securities. Sebi introduced permanent registration for financial intermediaries, doing away with the current requirement of re-applying every three years.

The board also decided that only minimal incremental disclosures would be required from those companies whose equity is listed and who wish to issue debt instruments by way of public offering or private placement.

The changed rules are for prospective schemes.

"Henceforth, all mutual fund schemes shall meet the sales, marketing and other expenses connected with sales and distribution of schemes from the entry load," SEBI chairman M Damodaran said.

Waiver of load for direct applicants will also be available in close-ended schemes, the Sebi chief said.

Currently, initial issue expenses on closed-ended funds are amortised over the period of the fund. It allows funds to spend the amount collected as fees (about 6 per cent for a three-year fund) in stages.
 
Following the Sebi move in 2006 to scrap the amortisation benefit for open-ended schemes, there was a spurt in closed-ended schemes. Of the 34 new fund offers in 2007, 24 were closed-ended.
 
On debt securities, the regulator decided that entities issuing debt securities for the first time will have to make detailed disclosures. This was a part of the draft Sebi regulations that had been put out for public comment. The regulator also said an offer to 50 or more people will require a mandatory listing.