SEBI rejigs mutual fund regulations; exit loads trimmed

Summary: In its latest board meeting, SEBI introduced a slew of reforms aimed at enhancing financial inclusion and increasing mutual fund inflows. Here’s a look at some of the key changes.

In its board meeting on Friday (September 12), the Securities and Exchange Board of India (SEBI) cleared key amendments to mutual fund regulations. The changes aim to broaden the investment horizon for funds while reinforcing investor protection and promoting financial inclusion.

#1 Reclassification of REITs

Real estate investment trusts (REITs) will now be treated as ‘equity’. This means investments in REITs by mutual funds will fall under the 10 per cent equity allocation limit, making them eligible for inclusion in equity indices and paving the way for higher inflows.

Infrastructure investment trusts (InvITs), however, will continue to remain under the ‘hybrid’ category. Importantly, the investment cap that earlier applied jointly to both REITs and InvITs will now be reserved solely for InvITs.

The move reflects the inherent differences between the two products. REITs are equity-like, relatively liquid and in line with global practices, while InvITs are largely privately placed, offer steady cash flows and are less liquid.

#2 Reduction of exit loads

SEBI has lowered the maximum permissible exit load on mutual funds from 5 per cent to 3 per cent. While funds were earlier allowed to charge exit loads of up to 5 per cent, most schemes in practice levy just 1-2 per cent. 

The new cap aligns regulation with industry norms, while retaining flexibility for schemes investing in less liquid assets.

#3 Revision of distributor incentive framework

From now on, commissions to distributors for mutual fund inflows from beyond the top 30 cities (B-30) will be paid only for new investors, identified through fresh PANs. These commissions will be capped at 1 per cent of the first application amount for lumpsum investments or the total first-year investment in case of SIPs (systematic investment plans), subject to a ceiling of Rs 2,000.

In a step towards gender inclusion, SEBI has extended the same incentive structure to new women investors.

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