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Regulation Change

SEBI had recently paved the way for 'capital protection-oriented schemes'. But as per the notification, such schemes will only try to protect the capital of the investors

Sebi has amended the fund regulations through its notification on August 3. The mutual fund regulation first came into being in 1993 and were thoroughly revised in 1996. The notification brings about two key changes. It lays the ground rule for launching 'capital protection-oriented scheme'. The other change is that regulator has hiked its fees for mutual funds.

The 'capital protection oriented schemes' will only try to protect the capital of the investors. These funds can only be closed-end funds and the asset management company will not repurchase units of capital protection-oriented scheme before end of the maturity period. Also these funds will have to be compulsorily rated by a credit rating agency for their ability to protect capital.

These funds will be like the monthly income plans except for the monthly income and liquidity based on their daily NAVs. But the key difference will be their appeal to risk-averse investors. These funds are likely to be perceived and sold as 'protection-guaranteed' scheme. Moreover, Indian savers have wide array of absolutely safe savings option from the Government of India (Post office MIP, recurring deposit, NSC, PPF, GoI/RBI Bond etc.).

The other change is the hike in minimum fee for the fund houses filing offer document for the new fund offers (NFOs). They will now have to pay 0.03 per cent of the total amount raised subject to a minimum of Rs 1 lakh. This means that if a new scheme raises Rs 100 crore, it will have to give Rs 3 lakh as fee to Sebi. The application fee for launching new mutual fund scheme has been hiked from Rs 25,000 to Rs 1 lakh.

Besides these, the regulator has also doubled the registration fees for setting up new asset management company to Rs 50 lakh. The fund houses will now have to pay an annual fee of Rs 2.5 lakh. This means more revenue for the regulator.

Hike in fee is unlikely to have any significant bearing for most investors. However, this can have noticeable impact on low-yielding fund categories like the cash and short-term bond funds.