The listed companies or public limited companies issuing right shares by 31st July 2020 and intending to send notices to the shareholders, may do so in any other mode other than registered post, speed post or courier and is not considered a violation of SEBI circular.
SEBI plays an important role in regulating all the players operating in the Indian capital market. It attempts to protect the interest of investors and aims at developing the capital markets by enforcing various rules and regulations.
What is SEBI?
SEBI is essentially a statutory body of the Indian Government that was established on the 12th of April in 1992. It was introduced to promote transparency in the Indian investment market.
Besides its headquarters in Mumbai, the establishment has several regional offices nationwide, including New Delhi, Ahmedabad, Kolkata and Chennai.
Objectives of the SEBI
- To protect the interests of the investors and safeguarding their rights.
- To promote the development of the securities market.
- To encourage fair dealings of the issue of securities.
- To develop and regulate a code of conduct to ensure fair practices by securities intermediaries such as brokers and merchant bankers. Thereby, making them professional and competitive in a secured space.
- To establish a market space that has a steady flow of saving and where participants may raise funds at a comparatively low cost.
Functions of the SEBI
Regulatory Functions
- Regulation of the businesses that are listed in stock exchanges.
- Registration and constant regulation of the stockbrokers, sub-brokers and all the intermediaries that are associated, in any manner, with the stock markets.
- Promotion and regulation of self-regulatory organisations.
- Registration and regulation of the collective investment schemes and mutual funds, and their working.
- Regulation of substantial takeover of companies and acquisition of shares.
Prohibitive Functions
- Prohibition of practising fraudulent and unfair trade practices in the securities markets.
- Prohibition of insider trading of securities.
Educative Functions
- Promotion of investor’s education.
- Encouraging the training of intermediaries regarding securities markets.
- Conducting proper research for essential matters.
Miscellaneous Functions
- Conduction of enquiries and audit of stock exchanges, intermediaries in the stock market, and self-regulatory organisations in the securities market.
- Implementing the powers delegated by the Central Government.
- Performing all the other functions mentioned in the SEBI Act, 1992.
- Imposing charges or any other fee for the implementation of the purposes of the Act.
Authority and Power of SEBI
i. Quasi-Judicial: SEBI has the authority to deliver judgements related to fraud and other unethical practices in terms of the securities market. This helps to ensure fairness, transparency, and accountability in the securities market.
ii. Quasi-Executive: SEBI is empowered to implement the regulations and judgements made and to take legal action against the violators. It is also authorised to inspect Books of accounts and other documents if it comes across any violation of the regulations.
iii. Quasi-Legislative: SEBI reserves the right to frame rules and regulations to protect the interests of the investors. Some of its regulations consist of insider trading regulations, listing obligations, and disclosure requirements. These have been formulated to keep malpractices at bay. Despite the powers, the results of SEBI’s functions still have to go through the Securities Appellate Tribunal and the Supreme Court of India.
FAQs
SEBI Guidelines on Mutual Funds Reclassification?
- Funds must be named based on the core intent of the fund and asset mix. It should specify the risk associated clearly.
- SEBI has suggested 16 classifications for debt funds, ten classifications for equity funds, six classifications for hybrid, two for solution funds, and two for index funds.
- SEBI has reclassified large-cap, mid-cap, and small-cap based on market cap relative rankings rather than absolute market cap cut-offs.
The debt fund classification is prescribed based on the duration of the fund and the asset quality mix. - All categories except index funds can only have one fund per classification, i.e. an AMC can have a maximum of 34 funds other than index funds.
Mutual Fund Regulations by SEBI?
- A sponsor of a mutual fund, an associate or a group company, which includes the asset management company of a fund, through the schemes of the mutual fund in any form cannot hold: (a)10% or more of the shareholding and voting rights in the asset management company or any other mutual fund. (b) An asset management company cannot have representation on a board of any other mutual fund.
- A shareholder cannot hold 10% or more of the shareholding directly or indirectly in the asset management company of a mutual fund.
- No single stock can have more than 35% weight in the index for a sectoral or thematic index; the cap is 25% for other indices.
- The cumulative weight of the top three constituents of the index cannot exceed 65%.
- An individual constituent of the index should have a trading frequency of a minimum of 80%.
- AMCs must evaluate and ensure compliance to the norms at the end of every calendar quarter. The constituents of the indices must be made public by publishing them on their website.
- New funds must submit their compliance status to SEBI before being launched.
- All liquid schemes must hold a minimum of 20% in liquid assets such as government securities (G-Secs), repo on G-Secs, cash, and treasury bills.
- A debt mutual fund can invest up to only 20% of its assets in one sector; previously the cap was 25%. The additional exposure to housing finance companies (HFCs) is updated to 15% from 10% and a 5% exposure on securitised debt based on retail housing loan and affordable housing loan portfolios.
- As per SEBI’s recommendation, amortisation is not the only method for evaluating debt and money market instruments. The mark-to-market methodology is also used.
- An exit penalty will be levied on investors of liquid schemes who exit the scheme within a period of seven days.
- Mutual funds schemes must invest only in the listed non-convertible debentures (NCD). Any fresh investment in commercial papers (CPs) and equity shares are allowed in listed securities as per the guidelines issued by the regulator.
- Liquid and overnight schemes are no longer allowed to invest in short-term deposits, debt, and money market instruments that have structured obligations or credit enhancements.
- When investing in debt securities having credit enhancements, a minimum of four times security cover is mandatory for investing in mutual funds schemes. A prudential limit of 10% is prescribed on total investment by such schemes in debt and money market instruments.