Sebi relaxes restrictions for REITs, tightens those for mutual funds

The markets regulator had strengthened standards for mutual funds, the appointment of independent directors, and the availability of investments in real-estate investment trusts to small investors as well as private equity and venture capital funds to accredited investors.

To guarantee that fund managers spend investors' money effectively, the Securities and Exchange Board of India (Sebi) mandated that asset management companies (AMCs) make a minimum contribution from their own accounts whenever a mutual fund scheme is launched.

As per the markets regulator, AMCs would be required to invest in the schemes in proportion to the risks involved with the scheme, implying that a riskier investment portfolio will necessitate a higher proprietory investment commitment. Normally, AMCs are required to invest a maximum of 50 lakh per plan.

Sebi's action is to reduce AMC mis-selling and ensure that fund managers allocate investors' money wisely. The decision comes after retail investors lost money in the last few years as a result of fund managers' risky bets and concentrated investments.

Sebi relaxed the investment framework for Reits, following a board meeting, allowing investors to place smaller investments. The minimum subscription and trading lot for REITs and InvITs were amended. The minimum application value has been cut from ₹50,000 to a range of ₹10,000-15,000. Also, investors can purchase and sell only a single unit.

The move is anticipated to attract more investors to REITs and InvITs, which are investment vehicles backed by income-generating properties such as offices, shopping malls, or highways.

Furthermore, Sebi permitted investments in non-publicly traded securities to all classes of investors as long as they are regarded as well-informed.

According to Sebi, “accredited investors” will be encouraged to engage in alternative investment funds (AIFs) such as private equity, venture capital, and hedge funds without being required to meet minimum investment requirements.