T+1 redemption and allotment for mutual fund units soon, says SEBI chief Madhabi Puri Buch

SEBI said that by strengthening the equity market eco-system, investors have benefited monetarily

By the end of May 31, 2023, just five fresh mutual fund house applications lay pending for approval at the capital market regulator, Securities and Exchange Board of India (SEBI). Two new fund house applications lay pending at its end, said SEBI chairperson Madhabi Puri Buch at an unscheduled press briefing held on July 24. The market regulator gave out a progress report on its operations; a section of which was devoted to how it has facilitated capital formation in the Indian economy in the past one year.

Faster clearances and pendency

As on March 31, 2022, SEBI revealed that six fresh MF house applications were pending for more than six months, two more were pending for 3-6 months, and four fund house applications were pending for 1-3 months. SEBI revealed similar reducing timelines in the pendency and ageing of registration applications in the case of Alternate Investment Funds (AIF), Real-Estate Investment Trusts (REIT) and Infrastructure Trusts (InVITs). Explaining the rationale of the quick turnaround time between the time it receives an application to start a fund house or AIF or REIT or InVIT till the time the firm starts its operations, Buch said markets move fast and the opportunity to raise capital vanishes overnight. This, she said, is a very serious issue. “Therefore, we have started measuring our turnaround time, very carefully,” she said.

Buch also stressed that the turnaround clock for SEBI is from the date it receives the application for the first time, and not from the time the applicant answers the final query raised by SEBI.

Savings for investors
SEBI also said that by strengthening the equity market eco-system, investors have benefited monetarily. For instance, Buch said that by reducing the mutual find redemption timelines, SEBI’s back-of-the-envelope calculations show that investors have gained Rs 230 crore; going by an analysis of redemptions worth Rs 24 lakh crore (only in equity and hybrid schemes).

Buch also reminded that there is already a T+1 settlement in buying stocks in the cash market. This, she explained, will have an impact on mutual fund units eventually as SEBI aims to reduce the allotment and redemption of units to one day. This means that from the current standard of T+2, redemption and allotment of MF units will also reduce to T+1.

A new regulatory design for faster implementation of laws

Taking cues from how SEBI works closely with the Association of Mutual Funds of India (AMFI; the mutual fund industry’s trade body), Buch said that SEBI will very soon implement a new way of implementing laws. Often, she elaborated, that policies are decided by SEBI but when it comes to being implemented, the industry gets back with difficulties in implementing certain norms. “We find often that a lot of queries come to us on how are these supposed to be implemented. So, first, we try and explain this through an FAQ (Frequently-Asked Questions) document. But on deeper reflection, we came to the conclusion that what would work better is a standard setting for implementation. This is not the regulation; it’s about implementation. This task is done by industry bodies (like AMFI) themselves,” she said.

Here, Buch highlighted the example of how AMFI, for instance, has set standards in the past on, say, debt fund valuations which would be binding on all fund houses to follow, following SEBI’s rule, for instance, on strengthening valuation norms and laying down stronger borders, within which fund houses need to function.

Consultation paper on influencers coming soon

SEBI reiterated that a consultation paper on FinFluencers is on its way soon. Here, Buch reiterated that SEBI cannot regulate FinFluencers as what they recommend in their private capacity cannot be curbed under Indian laws. However, Buch said that regulated entities, like stock brokers, mutual funds, and so on will be barred from dealing with FinFleucners, engaging with them or having any dealings with them. The paper might also address the question of veiled investment advisory that finfluencers are said to have been giving. As per SEBI laws, if a person gives investment advisory services in consideration for a fee, then she is mandated to be registered with SEBI under the Registered Investment Advisory regulations.