The Securities and Exchange Board of India (Sebi) board will meet on October 5 to discuss a new set of rules governing mutual funds, including a proposal for higher networth requirements for funds. The board is also likely to take up the operational framework for foreign investors for discussion.
The board meet comes against the backdrop of Sebi chairman U K Sinha reiterating that there needs to be tighter entry controls for entities desirous of setting up an asset management company (AMC). He has hinted at an increase in the networth requirement of AMCs that is currently pegged at R10 crore.
Speaking at a mutual fund summit in June, Sinha said the share of the smaller AMCs in the total assets under management (AUM) has remained insignificant over the last few years, which makes the regulator feel that some fund houses are not serious about their business.
Another important item on the Sebi board agenda is the operational framework for foreign investors and the manner in which entities can smoothly migrate to the new framework.
In June, Sebi accepted the recommendations of the K M Chandrasekhar committee on rationalisation of investment routes for overseas investors by merging FIIs, sub-accounts and QFIs into a new investor class to be termed as FPIs.
However, market players say that since the new regulations are quite different from the earlier regime for foreign investors, there are still a lot of issues that need to be addressed. One major clarity that the market players are waiting for is related to taxation of FPIs.
According to Section 115 AD of the Income Tax Act, FIIs and sub-accounts do not have to pay any long-term capital gains tax if the shares are held for more than a year.
The short-term capital gains are taxed at 15%, while interest earned on bonds are taxed at 20%. The interest on government bonds and certain prescribed corporate debt, however, attract tax of only 5% instead of 20%.