SEBI Introduces New Asset Class and Liberalizes MF Lite Framework

The Securities and Exchange Board of India (SEBI) has announced the introduction of a new asset class and a liberalized Mutual Funds Lite (MF Lite) framework, aimed at enhancing the investment landscape in India. This decision was made during the SEBI board meeting, which was notably the first after recent allegations against SEBI chairperson Madhabi Puri Buch.

Key Features of the New Framework

The MF Lite framework will specifically cater to passively managed mutual fund schemes, with a minimum investment limit set at Rs 10 lakh per investor across all investment strategies within a particular Asset Management Company (AMC). The objective is to offer investors a professionally managed product that allows for greater flexibility and higher risk-taking potential, while ensuring appropriate safeguards and risk mitigation measures are implemented.

Relaxed Regulatory Provisions

SEBI has approved a relaxed regulatory framework, allowing existing AMCs with both active and passive schemes to separate their passive schemes into different entities. This enables distinct management of active and passive schemes under a common sponsor. Additionally, existing AMCs can continue to manage their passive schemes under the current MF regulations, with relaxed disclosure and regulatory requirements applicable to them.

Enhancements to Settlement Processes

The board also announced an expansion of the optional T+0 same-day settlement cycle, increasing the number of scrips eligible for this settlement from 25 to the top 500 by market capitalization. Registered stock brokers will have the flexibility to charge differential brokerage rates for investors opting for this settlement cycle. Notably, SEBI clarified that the earlier proposal to transition from optional T+0 to instantaneous settlement is not under consideration.

Streamlined Rights Issue Process

In a move to expedite the rights issue process, SEBI has reduced the timeline for completion from 317 working days to 23 working days post-approval, making it a quicker alternative compared to the 40 working days required for preferential allotments. All rights issues below Rs 50 crore will now fall under SEBI’s purview.

Regulatory Revisions for Investment Advisors

The SEBI board approved a review of the regulatory framework for Investment Advisors (IAs) and Research Analysts (RAs), aiming to facilitate ease of doing business by relaxing registration eligibility criteria and simplifying compliance requirements. These changes are expected to boost the number of registered IAs and RAs to meet the growing demands of domestic investors.

Amendments to Insider Trading Regulations

Amendments were made to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, clarifying the definitions of “connected person” and “immediate relative.” The new provisions include firms and their partners or employees in the scope of connected persons, along with broadening the definition to include relatives beyond immediate family.

New Trading Options for Investors

Investors will now have the option to trade in the secondary market using a Unified Payments Interface (UPI) block mechanism or a 3-in-1 trading facility, in addition to existing trading methods. SEBI has also introduced measures for quicker resolution of specific violation-related matters and approved key amendments to facilitate ease of doing business for listed and to-be-listed entities.