Friday, 29 July, 2011

SEBI's new Announcement impacting Retail Investors

SEBI's new Announcement impacting Retail Investors

Disclaimer: I'm writing this post based on the memory of what I watched on TV earlier in the day. Facts need to be verified after the implementation process starts in due course!

SEBI has made a series of announcements regarding mutual fund investments, IPO investing, Takeover norms, etc.

Here is a quick synopsis along with my brief comments:

  • Transaction Charges of Rs. 100/= to Rs. 150/= announced for investment in mutual funds. Some kind of differentiation is being made between new and existing investors.

    • Is this the beginning of the attempt to re-introduce entry loads once more? - Almost for sure, I guess!

    • How is it going to be collected? Will it be deducted from the initial sum invested? Then why is it not a minor / microscopic percentage of the sum invested? A fixed charge is obviously regressive - Penalises the small and middle class investor more than the large investors

    • Is it a one-time fee for a particular year? For investment in a particular scheme? For investment in a particular fund house? No clarity as of now.

    • It would have been much more honest if SEBI had simply re-introduced an entry load or retain the present system of the fees being negotiated by the distributor with the investor.

    • Will the transaction charge be applicable only for equity funds or even for stuff like debt funds? No clarity.

  • New & Improved "Unified KYC norms" being introduced.

    • This almost looks like a "New & Improved Surf" or "New & Improved Hamam"!

    • Either you're going to insist on true KYC norms on a logical basis - which will involve providing proof of Identity, Address, Date of Birth, and, in some cases, financial status. Or you're going to be lax in the name of being "customer-friendly". For Heaven's sake, let SEBI decide once for all which one it wants. And stick to that.

    • We're way too tired, having moved from virtually nothing, to providing a photo & address proof, to providing PAN card details, to providing a MAPIN reference to the current system of KYC norms, which is again sought to be changed.

    • I only hope and pray that presently KYC compliant customers are not harassed once more to re-invent the wheel and provide all and sundry details!

  • IPO Forms to be modified and simplified.

    • I'll just need to wait and respond.

    • For most of us who depend on online options for IPO investing, fortunately, things are already fairly simple. This is one area where SEBI has been reasonably helpful. (Caveat - IPOs need to be sold for promoters to get the required funds. Perhaps the pressure from promoters and merchang bankers have ensured that the IPO investing process has become so simple!)

  • New Mutual Fund Advertisement norms to be implemented. Ads to mention absolute returns and not CAGR returns.

    • This is truly amazing. CAGR is the only truly comparable piece of data that is relevant. To claim that it is "Too complex" for investors to understand is indeed strange. If CAGR is too complex, how are they supposed to really comprehend the obfuscating risk factors including claims about "past performance do not necessarily predict future performance" or "the name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns"? Give me a break!

  • Takeover norms being changed - Trigger moved from 15 to 25%; Minimum quantum of open offer to be 26% instead of 20%; No-compete Fees banned.

    • Will enable strategic investors to enter to a greater extent without worrying about the need to make an open offer.

    • 100% Open offer would have perhaps been better for retail investors, but pressure groups seem to have prevailed in this regard.

    • The removal of a separate "No-compete Fees" given exclusively to promoters is indeed a step in the right direction.

    • On the whole the proposed changes in takeover norms seem to be fairly balanced, keeping in mind the overall constraints in the Indian scenario.

As I mentioned right at the outset, let's wait for the details to come out and then react further, if required.



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