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Sebi eases preferential allotment norms

Gives mutual funds more flexibility in ads raises investment limit under portfolio management services

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The Securities and Exchange Board of India (Sebi), the capital market regulator, today lifted restrictions on broad-based institutions, such as insurance companies and mutual funds, subscribing to preferential issues of companies. The decision was taken at its board meeting in New Delhi today.

According to earlier regulations, these institutions were not allowed to participate in preferential allotments if they had sold holdings in the issuer companies in the preceding six months. Further, on allotment, they were required to lock in their entire pre-preferential holdings in such companies for a period of six months from the date of preferential allotment.

Both these restrictions have now been lifted. “It has been decided to exempt insurance companies and mutual funds, which are broad-based investment vehicles representing public at large, from regulations related to sale and lock-in of their pre-preferential shareholding in issuer companies,” said in a release. However, the lock-in on shares allotted in the preferential issue, will remain unchanged.

Peerless Mutual Fund MD & CEO said: “The move will benefit some of the larger asset management companies (AMCs) that already have significant holdings in companies and want to increase those further through preferential allotments. At present, not many participate in preferential allotments.”
 

FROM THE REGULATOR
Important decisions taken at Sebi board meeting today
  • Sale and lock-in restrictions lifted for insurance firms and subscribing to preferential issues 
  • Advertisement code amended, made more principle-based 
  • Definition of advertisement broadened to influence investment decisions of any investor
  • Minimum investment amount under PMS increased to Rs 25 lakh from Rs 5 lakh
  • Reservation in rights/bonus issues only to compulsorily convertible debt holders
  • Valuation norms for liquid funds tightened

Quantum Mutual Fund Chief Executive Officer added: “The move to ease will help promoters more than AMCs, as their investor base will increase. Mutual fund houses will now be able to invest in companies, even if they had sold shares in the companies in the past six months.”

Other key decisions
Amendment to MF Advertisement Code: To provide more flexibility to mutual fund houses, Sebi has decided to amended the advertising code to make it principle-based. “The definition of advertisement shall be broadened to include all forms of communication that may influence investment decisions of any investor,” the regulator said.

“Under the current advertisement code, there are many restrictions. More than 40 per cent of the ad space gets wasted on disclaimers and information that investors don’t even read. I hope the new code would give us more flexibility and reduce the disclaimers, so that we can advertise our products properly,” said Gupta.

PMS investment limit increased: The market regulator has increased the minimum investment amount under portfolio management services from Rs 5 lakh to Rs 25 lakh. Further, portfolio managers have been asked to ensure segregation of holdings in individual demat accounts in respect of unlisted securities, too.

“Raising the PMS limit was long overdue. The move will benefit the mutual fund industry. As portfolio managers, who have better incentive structures, used to lure relatively small high networth individuals (HNIs) away from mutual fund houses. This will bring back a lot of investors to mutual funds,” said Patel.

Reservation for holders of convertible debt securities: Sebi has clarified that reservations to convertible debt holders in rights and bonus issues shall only be available to compulsorily convertible debt holders.

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