Market regulator SEBI raises disclosure norms; tightens rules for MFs

Liquid mutual fund schemes will have to hold at least 20 per cent in liquid assets like gilts

India’s market regulator on Thursday raised disclosure norms for pledging of shares by promoters of companies and tightened rules for mutual funds in the country in an effort to protect minority shareholders and retail investors.

The Securities and Exchange Board of India (SEBI) also put a cap of 5% of net sales on royalty paid by companies to their parents or promoters and mandated companies to get shareholder approval for royalty payments above the cap, it said in a release after its board meeting, news agency Reuters reported.

The need for higher transparency on pledged shares come after recent fears of high exposure of mutual funds to companies with a high percentage of promoter shares pledged through complex structures.
 

Here are key points emerging from SEBI chairman Ajay Tyagi's press conference in Mumbai.

• Liquid MF schemes will have to hold at least 20 per cent of funds in assets like gilts
• MF banned from entering into standstill agreements with companies.
• SEBI says royalty payments over 5 per cent will be considered material.
• There should be adequate security cover of at least 4 times for investment by MF schemes in debt securities having credit enhancements backed by equities.
• Payments made to related parties towards brand usage/ royalty may be considered material if transaction exceeds 5% of annual consol turnover of listed entity.

(With inputs from Reuters and PTI)