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Sebi opens up Reits, tightens MF rules, and hires directors in India.
Birds perch on the Securities and Exchange Board of India’s logo (SEBI), FILES/Shailesh Andrade/REUTERS

Anirudh Laskar, 30 June 2021

The markets regulator strengthened mutual fund rules on Tuesday, requiring independent directors to be hired, and allowing small investors to invest in real estate investment trusts as well as private equity and venture capital funds.

The Securities and Exchange Board of India (Sebi) makes it essential for asset management companies (AMCs) to put up a minimum investment from their own account every time a mutual fund scheme is established to guarantee fund managers deploy investors’ money wisely.
AMCs will have to participate in the schemes to ensure “skin in the game” in proportion to the scheme’s risks, according to the markets regulator, which means a riskier investment portfolio will necessitate a bigger proprietory investment commitment. Currently, AMCs are required to invest a maximum of Rs. 50 lakh per plan.
The measure by the Sebi aims to prevent AMCs from misselling and ensuring that fund managers allocate investors’ money wisely. The decision comes after individual investors have lost money in recent years as a result of fund managers’ risky bets and concentrated investments.
Sebi loosened investment restrictions for Reits following a board meeting, allowing investors to make smaller stakes. The minimum subscription and trading lot for Reits and InvITs were changed. The minimum application value has been cut from $50,000 to a range of $10,000 to $15,000 for new applications. Alternatively, investors can buy and sell a single unit.
Mint initially reported in July 2020 that the Sebi was considering making Reits and InvITs more accessible to small investors by cutting the minimum trading lot size of Reit units to just one unit, similar to how stocks are traded. More investors are expected to flock to Reits and InvITs, investment vehicles backed by income-generating properties such as offices, malls, and highways, as a result of the ruling.
“The reduction in trading lot size represents a watershed moment for Sebi in terms of deepening the market for InvITs,” Harsh Shah, CEO of IndiGrid, said. “This will not only improve liquidity and price discovery, but it will also give an appealing chance for ordinary investors to earn consistent returns with potential for growth. Additionally, the move sets the path for greater institutional participation.”
Yash Ashar, partner and head of capital markets at Cyril Amarchand Mangaldas, said, “With three publicly listed InvITs and three publicly listed Reits, everyone who wants to have rates that are better than fixed deposit income and with manageable risk may now engage this market.”

All classes of investors, as long as they are regarded well-informed, can invest in securities that are not publicly listed, according to the Sebi.

According to the Securities and Exchange Commission (Sebi), “accredited investors” will be able to invest in alternative investment funds (AIFs) such as private equity, venture capital, and hedge funds without having to meet minimum investment requirements.
Accredited investors will be able to invest in products with a lower minimum investment amount than that required by the AIF guidelines and portfolio manager standards. Depositories, stock exchanges, and a few other organizations will be recognized as accreditation agencies with the ability to issue certificates.
Sebi also tightened the directorship criteria for listed companies in order to boost corporate governance standards.
Only a special resolution of shareholders can appoint, reappoint, or remove independent directors, according to the SEC.
The nomination and remuneration committee (NRC) of listed companies must now adopt a transparent approach when selecting independent directors. For appointment as an independent director, further disclosures regarding skills will be necessary. At least two-thirds of the NRC should be independent directors, according to Sebi.
The original version of this article appeared on livemint.com.

Sebi (Sebastian) (Securities and Exchange Board of India)

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