Sebi board clears Mutual Fund rules, fund houses may need to invest more in NFOs

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Sebi on Tuesday approved amendment to mutual fund rules, which may require fund houses to invest more in their new fund offerings depending on risk level to ensure more skin-in-the-game. The current rule requires an investment of one per cent of the amount raised in New Fund Offer (NFO) or an amount of Rs 50 lakh, whichever is less, Sebi said in a statement after its board meeting.

"The board approved amendment to Sebi (Mutual Funds) Regulations, 1996, to provide for investment of a minimum amount as skin in the game in the mutual fund schemes by AMCs based on the risk associated with the scheme, instead of the current requirement of one per cent of the amount raised in NFO or an amount of Rs 50 lakh, whichever is less," Sebi said. Among others, the Sebi board has cleared the proposal to amend the FPI rules to permit eligible Resident Indian Fund Managers (other than individuals) to be constituents of Foreign Portfolio Investors (FPIs).

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"Such FPIs will be investment funds approved by Central Board of Direct Taxes (CBDT) under Section 9A of the Income-Tax (IT) Act, 1961, read with the IT Rules, 1962," Sebi said. These amendments will bring the Sebi FPI norms in line with the recent amendments in the IT Act, thereby facilitating Indian fund managers in managing investment funds incorporated/established/ registered outside India, the regulator said.

To provide easy access to investors to participate in public or rights issues by using various payment avenues, Sebi has decided to allow banks, other than scheduled commercial banks, to act as investment bankers. Also, the regulator said that Credit Rating Agencies Regulations were amended to define a credit rating agency (CRA) in terms of rating of securities that are listed or proposed to be listed on a recognised stock exchange.

To provide for an explanation to certain rules which specify that ratings undertaken by a CRA under the respective guidelines of a financial sector regulator or authority will be under the purview of the concerned financial sector regulator or authority, Sebi said. Securities and Exchange Board of India board also approved its annual report for 2020-21.