SEBI may overhaul mutual fund regulations at next board meet on June 27

The Securities and Exchange Board of India (SEBI) has convened a board meeting on June 27 to consider an overhaul in the mutual fund industry regulations, and guidelines on DVR shares with superior voting rights, among other things.

At the meeting, SEBI plans to take in-principal approval for changes in the method of calculation of Net Asset Value (NAV). “Mutual Fund companies indulge in buying and selling of funds from each other just to boost the NAV. This practice called inter-scheme transfer has come into the notice of the regulator," a source told Moneycontrol.

SEBI also wants to tackle the problem of concentration of asset under management (AUM) with just ten asset management companies. It may, therefore, come out with some mechanism to decrease the concentration of the fund in the hands of a few fund managers.

Another matter on the SEBI agenda is increasing the scope of the definition of ‘encumbrance’. The regulator may include ‘non-disposal undertaking’ within the definition of encumbrance. Non-disposal undertaking means an agreement whereby a debtor taking a loan against shares promises to not sell those shares. This arrangement helps the debtor to avoid categorising such shares as pledge shares. So, it is easy for promoters to hide actual information of pledged shares.

A source in the industry told Moneycontrol, “If the regulator is able to impose this definition then a clean-up will start on the books of debt-laden companies."

Another major change that may be considered is allowing mutual funds to invest in only instruments that have a certain rating. So far, they were allowed to invest even in non-rated papers instruments. A fallout of this was seen in the case of Zee and HDFC AMC or Kotak AMC where SEBI had to issue show cause notice for not matching the asset-liability and failure in payment to Fixed Maturity Plan investor.

Once SEBI passes its accounts, it will have to be tabled in the parliament.

SEBI may also approve norms for companies listed on the Innovators Growth Plan (IGP) platform to trade under the regular category of the main board of stock exchanges after completion of one year of listing on the former platform. This will be subject to compliance with exchange requirements.

SEBI is likely to come out with guidelines on differential voting rights (DVR) also in the upcoming board meeting.