Market regulator Sebi has said it plans to undertake several reforms to
develop equity culture in the country, but will not allow companies to
raise funds through IPOs if their intentions are unclear and investors' interest is compromised.
Listing out the steps being taken for the
benefit of the markets and investors , Securities and Exchange Board of India (Sebi) Chairman U K Sinha said that these measures would seek to balance the need of retail investors and the need for encouraging more people to invest in the equity market.
"These are all far-reaching reforms so far as expanding the equity culture is concerned. And, most importantly, this is not the end of it, we will consider many more reforms," Sinha said.
To safeguard the interest of investors, Sinha said, Sebi has decided to reject those IPOs (Initial Public Offers), about which the regulator is "not very sure that the intention is clear, the data and information is clear..."
Asked about the need to expand the equity culture in the country, Sinha said: "Sebi has to balance the needs of the retail investors and also the need to encourage people to invest in the equity market.
"Both have to be balanced. So, in the past one year, we have been guided by these two considerations very seriously and then made our moves," he said, while listing out measures like additional incentives to mutual funds for going beyond top 15 cities.
"We were noticing that inflow into the industry was shrinking from beyond these top cities. So, exactly the point you are making, that how to encourage the people to acquire the equity culture, we have taken this step," Sebi chief said.
"We want an equity culture, but we want an equity culture where people invest on a long term basis.
"Because if people invest on short-term basis, and there is lot of churning and buying and selling activities and in the process ending up paying more to the distributors rather than earning for themselves more benefits, we are trying to curb that tendency," he said.
At the same time, Sinha said, pension is another area where reforms are necessary for developing an equity culture.
"The world over, equity market has developed on the back of pension reforms and that is missing in India... It is not only about PFRDA, even the EPFO should permit the funds to invest in the securities market. Large pension funds from across the world are coming to invest in India, but our own funds are not investing," he said. .
Sinha said Sebi has allowed an entirely new set of distributors like retired bankers, school teachers and retired government servants to sell mutual funds.
"So, we have a simplified set of requirements for spreading the equity culture. At the same time, to safeguard the interest of investors, we have said that they cannot sell complex products," he said.
"That is another measure towards this balance between equity culture and the safeguarding of investors' interest.
"Next, imagine a situation where you are a farmer, a small businessman in a village where you do not have a bank account. In such a case, how do you invest in a mutual fund? So, Sebi has also allowed that up to Rs 20,000 of investment in cash," he added.
Sinha said that Sebi has taken care of the interest of small investors in all its steps to develop an equity culture.
"For protecting the interest of small investors in mutual funds, we have also asked for more disclosures, disclosures through advertisements code and everywhere we have asked for more disclosures," he said.
In the primary market, Sinha said, only five-six centres used to have maximum number of applications from retail investors, but bow Sebi has allowed and facilitated that applications can be obtained and filed from 1,000 centres.
"Earlier, when IPOs used to come and whenever it was a good IPO, there used to be reports of grey market for applications alone. People had to pay money for applications.
"But, Sebi's latest move will eliminate all this. Now you can go to any broker, you can download the application, fill up the application directly or in paper form, all these things we have now provided," Sinha said.
In another IPO market reform measure, Sinha said, Sebi has expanded the ASBA (Application Supported by Blocked Amount) facility.
Explaining the move, Sinha said, "Earlier, when a retail investor used to apply in an IPO, he used to sign a cheque and the money will be debited from his account, and used to suffer loss of interest for 3-5 weeks because there was no guarantee that the shares will be allotted for the entire amount debited from his account.
"Then the remaining money will be credited back in another 1-2 weeks, so for about 4-6 weeks, the investors used to suffer loss of interest. So, Sebi introduced the ASBA facility and now we have decided to expand it."
Even in the allocation process for retail investors, nobody was earlier sure that he or she will get a confirmed allotment in an IPO.
"You apply in an IPO, there used to be a lottery, so many applications, so many lots. What we have done, we have increased the lot and have also said that there will be a confirmed allotment," Sinha said.
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