Sebi’s Bold Move to Revolutionize Investment Opportunities

On a pivotal Monday, the **Securities and Exchange Board of India (Sebi)** rolled out a series of transformative decisions aimed at invigorating the investment landscape. These changes introduce a fresh investment product that acts as a bridge between **mutual fund schemes** and **portfolio management services**, alongside relaxed regulations for investment advisors and research analysts.

A New Investment Product on the Horizon

In a meeting held in Mumbai, Sebi announced plans to launch this innovative investment product within the existing mutual funds framework, providing investors with greater flexibility in portfolio construction.

Sebi emphasized that this initiative is designed to combat the rise of unregistered and unauthorized investment schemes, which often lure investors with promises of exorbitant returns. Such schemes can lead to significant financial risks, making this new framework a timely intervention.

An Insight from Industry Experts

**Siddarth Pai**, co-founder of **3one4 Capital**, expressed optimism about the new asset class, predicting a bold new chapter for **India’s capital markets**. “Allowing mutual funds to incorporate hedging and derivative strategies—traditionally the realm of hedge funds—will likely encourage substantial asset reallocations toward these strategies. The proposed **₹10 lakh** minimum ticket size is significantly lower than that of **CAT-III AIFs**, enabling more investors to access this option,” he noted.

Meanwhile, **A. Balasubramanian**, managing director and CEO of **Aditya Birla Sun Life AMC**, pointed out that this initiative would empower mutual funds to explore derivatives akin to hedge funds, thus boosting institutional participation in Futures and Options (F&O), which is largely dominated by proprietary traders and retail clients.

Welcoming More Advisors to the Fold

Additionally, Sebi has relaxed the eligibility criteria for aspiring **Registered Investment Advisors (RIAs)** and **Research Analysts (RAs)**. No longer will there be a net worth requirement, reflecting the fee-based nature of their services which do not involve managing client funds directly. New advisors will simply have to maintain a deposit lien marked to a registered stock exchange.

In a significant move, Sebi has also reduced the educational qualifications for RIAs and RAs from a post-graduate degree to graduation, thereby broadening the field for potential candidates.

Introducing MF Lite

Recognizing that the existing mutual funds regulatory framework was primarily designed for active funds, which rely on fund managers’ discretion, Sebi unveiled the **MF Lite** framework. This new structure offers relaxed eligibility criteria for sponsors along with simplified responsibilities and streamlined approval processes for passively managed funds, such as **exchange-traded funds (ETFs)** and **index funds**.

**Ashish Gupta**, chief investment officer at **Axis MF**, shared that the intention of this new framework is to create a level playing field between newer players and established schemes, thereby fostering healthier competition.

New Trading Options on the Horizon

Beginning **February 1, 2025**, qualified stock brokers (**QSBs**) will be required to enhance trading options for their clients in the secondary market. Among the new options are:

1. Trading Supported by Blocked Amount (TSBA): Utilizing a UPI block mechanism, clients can trade without needing to transfer funds upfront. Instead, the necessary amount will be blocked in their bank account until trade settlement.
2. 3-in-1 Trading Account Facility: This seamlessly links a client’s bank, trading, and demat accounts, facilitating an effortless trading experience.

Clients will still have the option to stick with the conventional method of trading or choose one of the new arrangements as per the updated framework.

Enhancements in Settlement Cycle

Sebi also reviewed and enhanced the optional **T+0 settlement cycle**, expanding the list of eligible stocks from the initial 25 to an eventual top 500 based on market capitalization. Both institutional investors and individual investors will have access to this flexible settlement option, which now operates alongside the existing T+1 cycle.

Updates to Insider Trading Regulations

In another significant move, Sebi updated the definition of “**connected persons**” to align more closely with the **Income Tax Act**. This broader definition now includes relatives, employees, and partners of connected persons, among others.

**Makarand M. Joshi**, founder of **MMJC & Associates**, noted that expanding the scope of connected persons enhances the insider trading regulations but emphasized the need for increased awareness to ensure compliance among these individuals.