The cost of investment in stock market through initial public offerings (IPOs) and rights issues is expected to become cheaper for retail investors. The capital market regulator has approved, in principle, the idea of making lien on bank account as an alternative mode of payment. This move is considered revolutionary in India because it will put to an end the age-old practice of refunding investors money.

The Securities and Exchange Board of India (Sebi) board, which met here on Tuesday, also decided to tighten the net worth criteria for portfolio managers and approved the draft Sebi (Issues and Listing of Debt Securities) Regulations 2008.

The concept of creating lien on bank accounts will enable the application money for the rights and the IPOs to remain in the bank account of the investor till the allotment is finalized. This will eliminate the refund process. The modalities in this regard would be worked out separately, Sebi said in a statement.

The FE in its April 14 edition hinted that Sebi was considering such a move. The regulator is already in conversation with at least seven banks and is planning to launch a pilot project in three months in select cities where the infrastructure to launch such project is available.

According to sources, the move will eliminate the process of refunding the investors money, as the funds will remain in the investors account. Of late, several investors who have applied for the new offers have been crying hoarse about their funds being blocked while they await refunds for days.

For instance, Sebi chairman CB Bhave had recently intervened to refund application money from small investors who had invested in the ONGC public issue of 2003, but had not got any shares. He has instructed merchant bankers to refund the money promptly.