Sebi mulls new rules to protect investors

Capital markets regulator Securities and Exchange Board of India (Sebi) will consider tomorrow new rules to protect investors’ interest and to expand the country’s investment culture, with greater and more cost-effective access to products like initial public offerings (IPO) and mutual funds.

The proposals expected to be discussed at Sebi’s board meeting here include provision for a ‘safety net’ guarantee for IPO investors and some tax incentives for new investors. Besides, the regulator is also likely to consider the introduction of e-IPOs, which would allow investors to bid for IPO shares electronically and without any physical paperwork.

In addition to being a cost-effective way, the e-IPO is likely to make it easier for investors across the country to tap the IPO market. The regulator will likely consider ways to encourage investors and distributors in the mutual fund space.

Tomorrow’s meeting holds significance for being the first board meeting of the capital market regulator after an announcement by new Finance Minister P Chidambaram that various decisions could be made soon to attract more investors to mutual funds and other investment products.

Sebi Chairman U K Sinha had met Chidambaram on Saturday.

Sebi is also likely to discuss a new definition for 'small or retail investors' in the meeting as there is some ambiguity in current regulations. For IPOs, the investors putting in up to Rs 2 lakh are considered retail investors. However, listed companies distinguish small and large individual shareholders as those holding shares worth up to Rs 1 lakh and those holding shares worth more than Rs 1 lakh, respectively.

For mutual funds, the regulator will consider giving the fund houses flexibility in using their expense ratio. At present, the fund houses are required to divide their expense ratio (an amount deducted from investors' funds) as per a fixed formula between the fund management fees and other expenses.