SEBI to allow allow exchange-traded interest futures

After the launch of the futures for exchange rates between the US dollar and the Indian Rupee, The Securities and Exchange Board of India (Sebi) will allow exchange-traded interest rate futures in January, a senior official said on Monday.

“We are on track to launch interest rate futures. It will be launched by January”, T.C. Nair, director at the markets watchdog told an industry conference. Sebi is also considering launching exchange-traded corporate bonds and would unveil it in a “couple of months”, he added. “We are looking at an exchange-traded corporate bond market, because there is more transparency and manipulations are not possible,” Nair said.

Nair also hinted at the possibility of a fourth exchange for currency futures in the near future. “There are some banks and financial institutions which have applied and we are considering their proposal,” he said.

Changes in IPO refunds

The Economic Times news paper reported today that one may no longer have to wait for weeks for a refund if one fails to get an allotment in an initial public offer (IPO).

The Primary Markets Advisory Committee (PMAC) of the market regulator Sebi is actively considering introducing a value-paid instrument, that would be backed by an irrevocable lien. In simple terms it means that banks would block the full application amount — the total value of the shares applied for — in the investor’s account till the shares are allotted.

This blocked amount would continue to remain in the client’s account but would not be available for withdrawal or cheque payment. It would, therefore, continue to earn interest in the intervening period. On receipt of advisory from the registrar about the allotment of shares, the bank would release the amount equal to the cost of total number of shares the client has been allotted. This move would apply to both physical and electronic applications.

The proposed move would come as a relief to investors who face liquidity crunch as their investment remains locked in till companies refund the amount. In some cases, this could take a month, making it difficult for the small investor to invest in other issues. The new norm is also aimed at making the IPO process more efficient and transparent.

The move is aimed at cleaning up the IPO process and making it investor-friendly, a source close to the development said. The proposal after getting cleared by the PMAC will go to the Sebi board for consideration.

The proposal will remove a layer that led to blocking of retail investors’ funds. At present, it takes 15-50 days for the investor to get his refund.

Besides streamlining the financial aspect, the application form would be shortened to a single page of A-4 size and the IPO process till listing shrunk to 7-8 days. At present, the process from the day IPO opens for subscription to, till it lists on the stock exchanges takes 20-22 days.

The proposed move is to help investors who face liquidity crunch. It is also aimed at making the IPO process more efficient The measure will remove a layer that delays refunds. At present, it takes 15-50 days for retail investors to get refund After PMAC nod, it will go to the Sebi board for consideration

Proposal for Waiver of entry load in Mutual Funds

There is a proposal by the Securities and Exchange Board of India (SEBI) to allow investment in Mutual Funds without any entry load if it is directly invested by the investor with the Mutual Fund house i.e. investor does not invest through a intermediary such as a bank, broker, financial consultant, Financial distributors etc

At present, the biggest MF distributors happen to be banks, with the top five accounting for 70% of the entire market of equity-related MFs. More than 50% of private banks’ revenues today come from fee-based income, which mainly comprises of selling MF and insurance products.

Some fund managers and CEOs feel the move has the potential to boost the insurance business at the cost of MFs. However, some others feel the move is very important as the waiver will benefit end investors. As there will be no commission received by the financial distributors, they may prefer selling insurance products as it is more lucrative in terms of commissions and products like ULIP are in any case sold by these distributors as a product that combines insurance and investment.

Selling MFs gives the distributor a commission of 2.5%, but distributors of insurance products, which include unit-linked insurance plans, can charge commissions up to 25 times that of MFs. Presently, there are around 60,000 AMFI-certified MF agents in the country compared with more than a million insurance agents.

The top 10 cities account for 80% of the mutual fund assets, according to a BCG report. The non-urban areas still are heavily invested in savings accounts and MFs find it a challenge to tap this market. Without the aid of distribution it will be difficult to tap this market. It is expensive for a MF to reach every corner of the country and in a country like India distributors are doing this for them at a low cost of 2.5%.

Thus, it becomes important for the industry now to concentrate on the non-urban areas to expand. If the entry load is waived, getting new business from small towns could get tough.