SEBI, the market regulator, has given its approval to a range of amendments concerning investments in REITs and InvITs, venture capital funds, mutual funds, and market infrastructure institutions (MIIs) during its board meeting.
This decision was made during SEBI's 205th board meeting, which marks the second meeting since March 15.
During its board meeting, SEBI sanctioned the plan to establish a structure for Unit Based Employee Benefit (UBEB) schemes for the employees of investment manager/manager of InvIT/REIT.
As a result, the investment manager is now permitted to receive units of InvIT/REIT instead of management fees, with the intention of utilizing them for unit-based employee benefits. These units will be allocated directly to the Employee Benefit Trust, ensuring their exclusive use for the UBEB scheme.
SEBI has granted certain exemptions for Venture Capital Funds seeking to transition to the new SEBI (Alternative Investment Funds) Regulations, 2012 (‘AIF Regulations’) but have faced challenges in completely divesting their holdings prior to the transition. These VC funds will be given the opportunity to shift to AIF Regulations and utilize the benefits provided for such AIFs in managing their illiquid investments.
SEBI has approved changes to promote fairness in mutual fund equity schemes, allowing passive equity schemes to invest up to the weightage of the constituents in SEBI-specified indices. However, investments in sponsor's group companies are capped at 35%. This decision by SEBI promotes balanced competition among mutual fund equity schemes.
Mutual fund schemes are limited to investing up to 25% of their NAV in sponsor group companies, making it difficult for passive funds to accurately replicate the index when the sponsor's group companies make up a large portion. This puts AMCs at a competitive disadvantage compared to those without significant sponsor representation in the index.
SEBI has updated mutual funds regulations to address front-running incidents, requiring AMCs to establish systems to prevent market abuse. This includes enhanced surveillance, internal controls, and escalation processes. SEBI has also increased accountability for AMC management and mandated a whistle-blower mechanism for transparency.
Furthermore, a multitude of measures have been sanctioned to alleviate the burden of compliance for Market Infrastructure Institutions (MIIs) such as exchanges, depositories, and clearing corporations.
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