May bar premature withdrawals from fixed maturity plans.
The Securities and Exchange Board of India (Sebi) is expected to issue stricter norms for the mutual fund industry after its board meets here Thursday.
The guidelines for investment by foreign institutional investors (FIIs) are likely to be liberalised, sources familiar with the developments said.
The Sebi board was to have discussed these issues last Friday, but the meeting was postponed after the terror attacks on Mumbai on November 26.
The country’s regulators have been discussing these issues at various forums in view of the large-scale withdrawal of money by FIIs and redemption pressures that mutual funds have faced over the last two months. Sebi believes there is a need to open more windows for foreign investment in the equity markets and cushion pressure points for mutual funds.
Mutual funds have already submitted detailed proposals to Sebi on new norms for liquid schemes and fixed maturity plans (FMPs). Sebi is expected to bar premature withdrawals from FMPs and ask fund houses to list such schemes on the exchanges to provide investors an exit route. The move is aimed at reducing the redemption pressures on MFs when corporate and high net worth investors need liquidity and go in for huge withdrawals.
More than 100 applications for floating FMPs are pending with the regulator, which will decide on them only after the new policy is finalised.
Fund houses are divided on the maturity tenure for FMPs: While some favour three to six months, others prefer a minimum 12 months.
Sebi is also expected to make it mandatory for all fund houses to provide a monthly declaration of their portfolio for all schemes on their websites.
Sebi board will also discuss a proposal by its standing advisory committee for separate schemes for corporate and small investors. Many funds, however, said separate schemes for small investors will be uneconomic in view of their small corpus.
On encouraging FIIs, the Sebi board may discuss a proposal to do away with the cumbersome registration procedures of at least some categories of foreign investors.
The other issues that may be discussed include allowing FIIs and NRIs to hedge on the currency futures market and permitting more currencies to be traded in the futures segment.
Sebi Chairman C B Bhave has also been advocating an over-the-counter market (where currency forwards are traded bilaterally) for currency futures. This means allowing options trading in currencies on bourses and delivery-based settlement in the currency futures segment.
At present, hedging is possible on the currency futures market, but those who need delivery of dollars have to compulsorily enter separate deals with their bankers. This is because deliveries are not permitted on settlement. The matter is expected to be discussed at the board meeting.
