Higher Returns Ahead: SEBI Makes Direct Plans Default From Nov 1

Mumbai, October 29: Investors using digital platforms of asset management companies will see direct plans set as the default option for mutual fund schemes from November 1. The Securities and Exchange Board of India (SEBI) says the step is meant to raise returns for mutual fund investors.

Speaking on the matter, SEBI Chairman Tuhin Kanta Pandey said AMCs will also need to provide information about the higher expense ratio to customers who choose regular plans.

Lower Costs, Better Returns

Direct plans typically carry a lower expense ratio than regular plans. Because fund costs are lower, investors in direct plans generally retain more of the returns their schemes earn. The regulator's intention is to build this advantage into the default experience on digital channels.

Regulatory Review of Public Offerings

Pandey, speaking at a Deepavali event in the country's financial capital, said SEBI will review the framework for IPOs and FPOs. The regulator is also looking at the SME IPO framework and the Innovators Growth Platform, particularly for new-age companies, so that developing businesses can access public capital more easily.

“Public capital brings public responsibility,” he said, underlining the duties that come with raising money from investors.

Monitoring the Use of Issue Proceeds

SEBI has proposed closer supervision of how funds raised through an issue are spent. The regulator is also reviewing the framework for debenture trustees.

Pandey explained that a new structure is being designed in which third-party monitoring agencies would examine whether IPO proceeds are used for the objectives set out in the offer documents.

Consultation Proposals

Earlier this month, SEBI issued a consultation paper to strengthen the monitoring of IPO proceeds. The paper suggests making a monitoring agency compulsory for all public issues other than offers for sale (OFS), whatever the size of the issue.

According to the proposal, stock exchanges may levy a penalty of Rs 50,000 in each case where a company does not cooperate with a monitoring agency. If a company repeatedly fails to follow the rules, depositories may freeze the demat accounts of its promoters.

Companies with non-cooperation reports on record would not be permitted to end their agreement with an agency or appoint another one until they fix the lapse.

The proposals are still under consultation and have not yet been brought into force as rules.

Current Position

For now, if the fresh issue component of an IPO exceeds Rs 100 crore, the funds raised must be monitored by a credit rating agency registered with SEBI.