Starting November 1, 2024, the Securities and Exchange Board of India (SEBI) will make some big changes to how mutual funds and certain securities operate.
These changes are aimed at making the financial market more transparent and protecting investors’ interests. One of the major updates is that mutual funds will now come under SEBI’s Insider Trading (PIT) regulations.
Let’s take a closer look at what this means and how it will impact the mutual fund industry and investors:
New Regulations for Mutual Funds
Under these new rules, mutual funds and the companies that manage them will be governed by SEBI’s insider trading rules. This means senior employees at asset management companies (AMCs) who have access to confidential information won’t be allowed to sell their mutual fund holdings if that information could affect the company or its funds. SEBI’s main aim here is to prevent any unfair advantage and protect regular investors.
In the past, some fund managers could potentially sell units before a market decline, which posed risks for investors. By tightening these rules, SEBI wants to ensure that all mutual fund activities are conducted ethically.
Broader Scope of Insider Trading Norms
SEBI’s new rules cover more than just mutual fund managers and employees. The group now also includes other “connected persons,” such as board members, sponsors, trustees, auditors, legal advisors, bankers, and consultants.
By expanding the scope of who must follow these insider trading rules, SEBI aims to stop anyone with inside information from making unfair profits. This way, investor interests are better protected across the board.
Stronger Institutional Mechanisms for AMCs
SEBI is also pushing AMCs to create strong systems to prevent illegal trading activities like front-running and insider trading. Front-running is when someone trades based on non-public information, which is illegal and unethical.
To make sure these systems are in place, SEBI is making it the responsibility of top AMC officials, including the CEO, Managing Director, and Chief Compliance Officer, to implement these controls.
What This Means for Investors
These new regulations are expected to create a safer and more transparent investment environment. With strict rules against insider trading and front-running, investors can feel more confident that their investments are being managed ethically. This can help build trust in the industry, making mutual funds a more secure option for investors.
Simplifying the Debt Securities Application Process
Besides changes in mutual funds, SEBI is also working to make it easier to apply for debt securities. From November 1, individual investors applying through intermediaries for amounts up to ₹5 lakh will be required to use the Unified Payments Interface (UPI) for fund blocking. This change will make transactions smoother and may attract more retail investors to the debt market.
Faster Access to Funds for Issuers
SEBI is speeding up the minimum subscription period for public issues of debt securities from three days to two. If there’s a price change, the bidding period will only be extended by one working day.
It has also shortened the time for public comments on draft documents for listed securities to one day, and five days for others. These steps will allow companies issuing debt securities quicker access to funds.
Impact on the Debt Market
These updates in the debt market are expected to make the investment process simpler, particularly for retail investors. Makarand M Joshi, Founder of MMJC and Associates, noted that mandating UPI for bids up to ₹5 lakh could make the process easier and more attractive for retail investors.
Final Thoughts
SEBI’s new regulations signal a big shift in how mutual funds and debt securities operate. By extending insider trading rules to mutual funds, SEBI is aiming to create a more trustworthy and transparent market for investors. The changes for debt securities are also expected to streamline processes and attract more retail participation. Overall, these regulatory updates are a positive step towards building a safer, more transparent investment environment for all stakeholders in the financial market.
