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Introduction to SEBI History : The Securities and Exchange Board of India was established by the government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of the securities market and for investor protection. It was to function under the overall administrative control of the Ministry of Finance of the GOI. Reasons for the establishment of SEBI The capital market had witnessed a tremendous growth during the 1980’s characterized by the increasing participation of the public. This ever expanding investor population and market capitalization led to a variety of malpractices on the part of companies, brokers, merchant bankers, investment consultants and others involved in the securities market. Continued… The glaring examples of these malpractices include existence of self styled merchant bankers, unofficial private placements, rigging of prices, unofficial premium on new issues, non adherence of provisions of The Companies Act , violation of rules and regulations of stock exchanges and listing requirements, delay in delivering shares etc. These malpractices and unfair trade practices have eroded investor confidence and multiplied investor grievances PURPOSE & ROLE OF SEBI : To the issuers it aims to provide a market place in which they can confidently look forward to raising finances they need in an easy fair and efficient manner. To the investors it provides protection of their rights and interests through adequate accurate and authentic information and disclosure of information on a continuous basis. Continued… To the intermediaries it offers a competitive , professionalized and expanding market with adequate and efficient infrastructure so as to render better service to investors and issuers. Objectives: To regulate stock exchanges and the securities industry and to promote their orderly functioning. To guide , educate and protect the rights and interests of individual investors. To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation. Continued… To regulate and develop a code of conduct and fair practices by brokers , merchant bankers with a view to make them competitive and proffesional. NEW SEBI GUIDELINES FOR MUTUAL FUNDS The Security Exchange Board Of India ( SEBI) has brought in sweeping changes for the mutual fund industry. The impact of which will be felt on the investor in more ways than one. NEW FUND OFFERS : They will only be open for 15 days. (ELSS funds though will continue to stay open for up to 90 days) It will save investors from a prolonged NFO period and being harangued by advisors and advertisements. The motivation behind the rule seems to be simple – if you can invest anytime, why keep NFO period long? NFOs can only be invested at the close of the NFO period : Earlier, Mutual funds would keep an NFO open for 30 days, and the minute they received their first cheque, the money would be directly invested in the market; creating a skewed accounting for those that entered later since they get a fixed NFO price. The market regulator has corrected this by extending Application Supported by Blocked Amount (ASBA) to mutual funds. By the ASBA process one can continue to earn interest in the bank account until the NFO closes (remember there is usually no rejection or “oversubscription” in a mutual fund NFO) which means that the cheque goes for clearing after the NFO has closed irrespective of when it was sent. The fund manager will be able to invest once the NFO closes. Dividends can now only be paid out of actually realized gains : It will reduce both the quantum of dividends announced, and the measures used by MFs to garner investor money using dividend as a carrot to entice new investors. Equity Mutual Funds play a more active role in corporate governance This will help mutual funds become more active and not just that, they must reveal, in their annual reports from next year, what they did in each “vote”. SEBI has now made it mandatory for funds to disclose whether they voted for or against moves (suggested by companies in which they have invested) such as mergers, demergers, corporate governance issues, appointment and removal of directors. MFs have to disclose it on their website as well as annual reports. 1% Management fees removed Equity Funds were allowed to charge 1% more as management fees if the funds were “no-load”; but since SEBI has banned entry loads, this extra 1% has also been removed. Regarding the Fund-of-Fund The market regulator states that information documents that Asset Management Companies (AMCs) have been entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Fund schemes create conflict of interest. Henceforth, AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means from the underlying fund. These guidelines set by the SEBI will lead to greater transparency for the common investor. Securities lending by Mutual Funds Mutual funds were allowed to participate in securities lending subject to certain disclosures and reporting requirements. The guidelines issued lay down the disclosure requirements in the offer documents which include intention to lend the securities belonging to the scheme, the exposure limit regarding securities lending both for the scheme as well as for a single intermediary and the risks associated with stock-lending transactions. •The specifications regarding the valuation of the collateral have been prescribed in the guidelines to minimize the risk involved in securities lending transactions. To ensure adequate checks and balances regarding the securities lending transactions, the requirement of reporting to trustees and SEBI have been stipulated. Thank You…