SEBI board to take up two new issues: FPI disclosure norms, MF total expense ratio

SEBI board to take up two new issues: FPI disclosure norms, MF total expense ratio

Subject : Economy

Section: Capital Market 

Context: SEBI is likely to bring in regulations on two important issues: Tighter disclosure norms for foreign portfolio investors (FPIs) and review of the fees levied by mutual funds on investors.

Key Points:

1. Tighter disclosure norms for foreign portfolio investors (FPIs): SEBI introduced a consultation document in the aftermath of the Adani-Hindenburg controversy. The Hindenburg report alleged that some FPIs held a significant stake in the listed companies of the Adani Group. To address these concerns SEBI brought out the consultation paper on a framework for mandating additional disclosures from Foreign Portfolio Investors (FPIs). The key recommendations are:
   1. Proposing tighter disclosure norms for high-risk FPIs to prevent circumvention of Minimum Public Shareholding (MPS) rules
   2. Prevent possible misuse of FPI route to acquire or takeover stressed Indian companies at a lower valuation.
   3. High-risk FPIs, holding more than 50 per cent of their equity Asset Under Management (AUM) in a single corporate group and or having an overall holding in Indian equity markets of over Rs 25,000 crore will be required to comply with new disclosure requirements.
2. Review of the fees levied by mutual funds on investors: SEBI brought out the consultation paper on Review of Total Expense Ratio.
   1. It proposed that TER charged by mutual funds should be calculated at the level of the AMC (asset management company) and not at the scheme level.
   2. Also proposed that TER should be inclusive of securities transaction tax (STT) and goods and services tax (GST) on investment and advisory fees.
   3. The new methodology of calculation of TER can bring about transparency and reduction in the cost of investment in mutual funds for investors based on economies of scale.