The Securities and Exchange Board of India (Sebi) recently introduced new regulations targeting financial influencers or fininfluencers. The Sebi board has approved rules restricting partnerships between regulated entities and unregistered individuals. Sebi also proposed that mutual fund schemes should disclose 'risk-adjusted returns' along with standard returns to help investors take informed decisions.
Moreover, the Securities and Exchange Commission has increased the basic securities account limit to Rs 1 million to expand investor participation.
Check out the top three changes announced by Sebi in the last few weeks.
Sebi clears Fininfluencers framework
Sebi has also decided to regulate financial influencers or financial influencers amid growing concerns about the potential risks associated with these people.
Regarding fininfluencers, to address concerns related to certain individuals, including unregulated entities, enticing investors to trade securities on the basis of improper claims, the Sebi Board of Directors approved norms to restrict associations between regulated entities and unregistered persons .
This comes amid growing concerns about the potential risks associated with unregulated Finnish influencers who may provide biased or misleading advice. They typically work on a commission-based model.
A person regulated by the Securities and Exchange Board (SEBI) and that person's agents are any other person who, directly or indirectly, provides advice or recommendations or makes explicit claims of profits or performance, including through transactions of funds, referrals to customers, or interaction with information technology systems. There is no connection whatsoever with .
Pin influencers have had a significant impact on the financial decisions of their followers over the past few years, and Sebi’s regulatory framework could ensure they are held accountable and liable for the advice they provide.
The regulator has also decided to create a closed ecosystem where Sebi-registered investment advisers (IAs) and research analysts (RAs) can collect fees from their clients.
She added that regulators are stepping up action against market manipulators as they adopt advanced technologies, and will also take action on misconduct on the boards of small and medium-sized enterprises.
Futures and Options (F&O)
Sebi Chairman Madhabi Puri Buch has also publicly expressed concerns over the macroeconomic impact of speculative investments by retail investors in the futures and options (F&O) sector.
She said people were borrowing money and household savings were being depleted by these gambles, and announced that the Ministry of Economy had set up an expert working group to look into the issue.
Sebi raises basic demat account limit to Rs 1 lakh to boost investor participation
In a bid to increase participation of retail investors in the securities market, the Securities and Exchange Board has increased the limit for a basic service securities account from the current Rs 200,000 to Rs 1 million.
The new guidelines will come into effect from September 1, 2024.
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Increasing the limit on the value of securities held in the Basic Services Demat Account (BSDA) will encourage small investors to trade in the stock market and ensure their financial participation.
Basic Service Demat Account (BSDA) is a more basic version of the regular demat account. It was introduced by market regulator Sebi in 2012 to reduce the tax burden on investors with small portfolios.
For BSDA eligibility, Sebi requires that an investor has only one Demat account as sole or first holder, holds only one BSDA in his name across all depositories and its value meets certain criteria. It said that an individual is eligible to obtain a BSDA. The combined debt and non-debt securities of the securities in the account shall not exceed Rs 10 lakh at any time.
Previously, an individual was allowed to hold up to Rs 2 lakh worth of debt securities and up to Rs 2 lakh worth of debt securities in a single Demat account to qualify for BSDA.
Sebi said that for portfolio value up to Rs 4 lakh, the annual maintenance cost of BDSA will be zero and for portfolio value above Rs 4 lakh up to Rs 10 lakh, the cost will be Rs 100.
However, if the portfolio value exceeds Rs 1 million, the BDSA is automatically converted into a regular securities account.
Regarding BDSA services, the regulator said that electronic statements will be provided free of cost to the account holders, while physical statements may be charged at Rs 25 per statement.
As per the circular, Depository Participants (DPs) will only open BSDA for their eligible accounts unless the account holder opts for a regular Demat account via email.
DP is required to review and convert existing eligible demat accounts to BSDA within two months unless the account holder chooses to maintain a regular demat account via email. This review continues at the end of each billing cycle.
Earlier this month, Sebi released a consultation paper on raising the threshold limits for BSDA.
Sebi proposes mandatory disclosure of ‘risk-adjusted return’ for mutual funds
Sebi also proposed mandatory disclosure of 'risk-adjusted returns' along with the return of mutual fund schemes to enable investors to make informed investment decisions.
The risk-adjusted return (RAR) of a scheme's portfolio represents a more holistic measure of scheme performance because it quantifies the amount of return generated by a mutual fund scheme for each unit of risk taken to achieve that return.
The current regulatory framework does not mandate disclosure of RAR along with return of MF schemes.
Additionally, there is no uniform practice that asset management companies (AMCs) follow with respect to RAR disclosures for their plans.
Investment returns are a major factor that attracts investors to invest in any MF plan and this is what AMC emphasizes while marketing each plan.
Sebi, in its consultation paper, said that considering the importance of performance variability in determining the suitability of MF schemes, the RAR of the scheme should also be disclosed along with the disclosure of the scheme performance.
To ensure uniformity across various MFs, Sebi has also proposed a methodology for calculating IR for different types of mutual fund schemes.
Sebi has invited public comments on the proposal until July 19.
(Including PTI input)