Sebi to broaden the definition of strategic investors under reit, invitation norms

Mumbai, September 12 (PTI) Sebi decided on Friday to broaden the definition of ‘Strategic Investor’ under the Reit and Invitation norms by including QIBs and certain categories of FPIs to attract more institutional capital. The Sebi Council also has a proposal for the reclassification of Reit’s (real estate investment trusts) as ‘equity’ and the retention of the ‘hybrid’ classification for invitations (infrastructure investment trusts) for the purpose of investing through mutual funds and specialized investment funds. These proposals, approved by Sebi at his council meeting here, could increase higher investors’ participation in these investment vehicles. Sebi said his board of directors approved the proposal to amend Invitations/Reit norms to increase the investor base for the application under the strategic investor category in a public edition of such trusts. “It will promote comfort to do business by enabling invitations/Reit’s to attract capital of more investors under the strategic investor category,” Sebi said. The regulator believes that the current definition of strategic investor is under the Reit and Invit framework now and excludes several large institutional investors, such as pension funds, provident funds and insurance funds. These entities, although active participants in Reit’s and invitations due to their preference for long-term and stable revenue-generating assets, could not be categorized as strategic investors before the changes as strategic investors. To address this gap and promote the ease of affairs, the Sebi Council has approved a proposal to amend the definition of strategic investor to determine that an entity considered as a QIB (qualified institutional buyer) can apply as a strategic investor. This includes larger pool institutions, such as public financial institutions, pension and provident funds, alternative investment funds, state corporations for industrial development, family trusts and intermediaries registered with a net worth more than £ 500; Middle layer, top layer and top-low non-banking financing companies. With the facilitation of the improved participation of mutual funds in Reit’s and invitations, the SEBI Council has approved the amendments to mutual fund rules for “re-classification of Reit’s as fairness and the retention of the hybrid classification for the invitations for the purpose of investment through mutual funds and specialized investment funds”. The reclassification has been proposed taking into account the features of Reit’s, more prone to fairness, relatively more fluid and to align with global practices. Sebi said the products were mainly placed with more stable cash flow and with less liquidity. After re-classification of Reit’s, investment by mutual funds will be taken into account within the investment allocation limit for equity instruments and can also be eligible for inclusion in equity indices, allowing improved investment by mutual fund schemes in Reit’s. Due to the Equity Classification of Reit’s, the existing investment limit applicable to both Reit’s and invitations would now be available exclusively for invitations and thus facilitate the growth in this segment. To improve investor protection and promote financial inclusion, while ensuring a more transparent and sustainable incentive structure for mutual fund distributors, the board approved proposals for reducing maximum permissible exit charge from 5 percent to 3 percent. It was also decided to offer an incentive structure for distributors for new women investors, and a revised incentive structure for distributors for new inflows to the mutual fund industry from B-30 cities (outside the top 30 cities). “The current regulatory framework allows mutual fund schemes to charge a maximum 5 percent exit load, which is again credited to the scheme. However, mutual funds usually charge exit tax in the range of 1 percent to 2 percent. Reducing the maximum exit load will align the regulatory requirement,” said. ” The setting of the maximum cap at 3 percent was found appropriate to achieve a better balance between investor protection and flexibility for schemes exposed to less liquid effects. Regarding the incentive for the distributors for B-30 cities, Sebi decided to review the incentive structure and provide an incentive for distributors for investment/inflow of new individual investors (new PAN) from B-30 cities. The incentive will be provided to the distributor for new investors at operational level, and such incentive will be at 1 percent of the first application amount (in the case of lump sum investment) or the total investment during the first year (in the case of SIP), subject to a maximum of £ 2.000, Sebi said. Considering the extent of gender solution in space for mutual fund, it was decided to encourage distributors to create awareness and promote financial inclusion among women investors. Additional commission will be paid to distributors for investment/influx of new individual women investors at operational level. The calculation and payment of such commission is on the same lines as for the B-30 incentive.