Entry load has re-entered in a small way, but there are many other benefits for investors.
Last Thursday, the Securities and Exchange Board of India (Sebi) Chairman, UK Sinha introduced wider open offer exit routes, simplified initial public offer (IPO) application and single Know Your Client (KYC) norms.
According to the chairman, “These measures were taken to make the life of the average retail investor simpler and easier.” However, while there is a lot that the investors can cheer about, he will end up paying transaction fees for his mutual fund investments if he chooses to invest through a distributor or agent.
MUTUAL FUND TRANSACTION CHARGE
SIMPLIFIED IPO FORMS |
- Investors can make informed decision based on data on peer comparison and valuations details available now in the forms
- Size of the form is reduced to 25 per cent
TAKEOVER CODE
- With the open offer trigger being increased the number of open offers is likely to reduce
- Open offer price will be the same for both investors and exiting promoters
UNIFORM KYC NORMS
- Instead of signing over 50 places you just need to sign in one single place
- With uniform KYC norms competition among brokers is likely to go up which could bring down broking fees.
Here’s looking at how these regulations will impact retail investors.
SINGLE KYC REQUIREMENT
Amongst the biggest bane for investors, is fulfiling the pre-trading formality of registering a Know Your Customer (KYC) form. Typically, one had to submit documents such as address proof, identification proof and so on and as many 50 signatures to every new equity broker, mutual fund house, depository participant and portfolio manager he approaches.
The single Know Your Customer (KYC) requirement will ease such hassles. Once registered, data sharing across intermediaries, will result in investors having to fill the form just once.
The Unique Identification Document or Aadhaar can be used as part of the KYC process.
According to Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services, “With a single signature an investor need not have to go through the KYC formalities at multiple levels. You need not go through the formalities twice ,even when transacting with two different broking firms.”
The fallout of a single KYC window, could be intense competition within the broking fraternity. As CJ George, managing director, Geojit BNP Paribas Financial Services points out, “With investors having to through the KYC process just once, they will not think twice before shifting from one broking firm to another.”
EXIT ROUTE THROUGH OPEN OFFERS
Most market participants said the increase in the open offer size from 20 to just 26 per cent does not resolve the problems faced by minority shareholders in case of an acquisition. The limit should have been much higher, if not the 100 per cent suggested by the Achuthan Panel which was set up by Sebi. The 100 per cent exit option would have allowed retail investors to exit the company if they desired. Under the current system, retail investors were left high and dry as acquirers would stop accepting shares after the 20 per cent mandatory limit is met. "Raising it to 26 per cent is neither here nor there," said an investor.
SEBI has also said that new companies will no longer have to pay non-compete fees to the exiting company. Under the cureent system, the exiting promoter usually gets a premium of 15- 20 percent above the open offer price. For instance, in the Cairn -Vedanta deal, the open offer price was set at Rs 355 per share for investors. Cairn PLC, however, was offered about Rs 55 more at Rs 405 per share, which attracted flak from minority shareholders.
SIMPLER IPO FORMS
SEBI’s move will simplify IPO application forms. In terms of details, there will be much more information including the lead manager’s track record, peer valuation and other financial ratios. Data regarding the stand-alone as well as the consolidated results of at least three out of the preceding five years, will need to be included in the document. This will help investors take an informed decision.
Further, there would be a single form for both ASBA and non-ASBA applicants. ASBA refers to Application Supported by Blocked Amount wherein the application money is blocked in the investor’s bank account until allotment.
TRANSACTION COST FOR MUTUAL FUNDS
However, the one decision that not all investors will look forward to, is the transaction fee applicable on mutual fund investments. Annual investments of above Rs 10,000 will attract a transaction charge of Rs 100 a year. This will be in addition to the exiting commissions charged by the distributor. For an systematic investment plan, (SIP ), the charge can be paid in three to four instalments in a year. First time mutual fund investors will be charged Rs 150 to open a new account. Say, for example, if you have an SIP of Rs 1000 a month which adds up to Rs 12,000 a year, you will be charged a transaction fee of Rs 100 annually.
However, these charges are applicable only if you go through a mutual fund distributor or agent.
Mutual funds houses will also need to dispatch a common account statement every month for investors who have transacted in any of the folios across mutual funds. What’s more, the statement will also include disclosure regarding transaction charges paid to the distributor. Non -transacted folios will get statements every six months.
