Mumbai: The Securities and Exchange Board of India has allowed mutual funds to create segregated portfolios for stressed debt securities and eased listing norms for start-ups.
These measures, along with a raft of other steps, were announced after the board meeting on Wednesday.
The capital market regulator also permitted clubbing of investment limits for foreign portfolio investors and introduced custodial services for commodities derivatives market aimed at encouraging institutions to participate in the segment.
Side-pocketing of mutual funds
The new facility, known as side pocketing, involves separation of distressed or illiquid assets from other healthier securities in a debt mutual fund portfolio. The move is aimed at insulating the debt scheme from major erosion in its net asset value in the event of a default. The move comes in the wake of defaults by IL&FS that led to NAVs of various debt schemes taking big hits.
Sebi said fund houses will have the option for creating segregated portfolio, but approval of trustees would be necessary for activating such a portfolio.
“We will come out with a circular soon which would have adequate safeguards built in to ensure that this facility is not misused,” Sebi chairman Ajay Tyagi said while addressing reporters after the board meeting on Wednesday.
Mutual fund officials said side-pocketing is an important step to protect investors.
“In absence of side pocket and deep bond market, fund house will be forced to write down stressed assets on a conservative basis. With side pocketing, it will be fair to all investors and fund houses can focus on appropriate recovery,” said Nilesh Shah, managing director of Kotak Asset Management Company.
The regulator said it would also review valuation norms applicable to mutual fund schemes investing in debt and money market instruments.
Listing platform for start-ups
The Sebi board also approved revised listing norms for start-ups in businesses such as technology, intellectual property, data analytics and bio-technology.
The listing platform has been renamed as Innovators Growth Platform. Sebi said 25 per cent of the pre-issue capital of the issuer company should be held by qualified institutional buyers, family trusts with net worth of more than Rs 500 crore and category III foreign portfolio investors.
The regulator removed the current requirement of the cap on holding at least 25 per cent of the post issue capital by investors, among other steps. It also reduces the minimum application size for share offers to Rs 2 lakh, from Rs 10 lakh earlier.
FPIs investment limits clubbed
The Sebi board approved the proposal of clubbing of investment limits for foreign portfolio investors on the basis of common ownership of more than 50 per cent of common control. However, in the case of regulated public retail funds, investment limits will not be clubbed on the basis of common control, it said.
“The earlier norm requiring clubbing of investment limit on the basis of common beneficial ownership was stringent and could have inadvertently brought otherwise unconnected FPIs, connected only on account of a large common investor, within the aggregate investment limit. The proposed principle is practical and will not result in any unwarranted consequences which could have arisen under the earlier norms,” said Tejesh Chitlangi, Senior Partner,
IC Universal Legal.
Custodial services in commodities market
The regulator has also allowed custodial services in the commodity derivatives market to ease institutional investors participation in the segment.
“Sebi has taken one more step to strengthen the infrastructure of the commodity markets. Such measures are building blocks which will pave the way to institutional participation from mutual funds,” said Sanjit Prasad, CEO of ICEX.