Mumbai: The Securities and Exchange Board of India (SEBI) has decided to reduce cost of investment in mutual funds by doing away with the initial issue fee for close-ended schemes.
 
The Sebi board, which met in Mumbai yesterday, also cleared the draft proposal for listing of debt securities and eased disclosure norms for existing debt market securities. Sebi introduced permanent registration for financial intermediaries, doing away with the current requirement of re-applying every three years.

The board also decided that only minimal incremental disclosures would be required from those companies whose equity is listed and who wish to issue debt instruments by way of public offering or private placement.

The changed rules are for prospective schemes.

"Henceforth, all mutual fund schemes shall meet the sales, marketing and other expenses connected with sales and distribution of schemes from the entry load," SEBI chairman M Damodaran said.

Waiver of load for direct applicants will also be available in close-ended schemes, the Sebi chief said.

Currently, initial issue expenses on closed-ended funds are amortised over the period of the fund. It allows funds to spend the amount collected as fees (about 6 per cent for a three-year fund) in stages.
 
Following the Sebi move in 2006 to scrap the amortisation benefit for open-ended schemes, there was a spurt in closed-ended schemes. Of the 34 new fund offers in 2007, 24 were closed-ended.
 
On debt securities, the regulator decided that entities issuing debt securities for the first time will have to make detailed disclosures. This was a part of the draft Sebi regulations that had been put out for public comment. The regulator also said an offer to 50 or more people will require a mandatory listing.

Damodaran said the Sebi board would consider guidelines for Real Estate Investment Trusts (REITs) and real estate mutual funds at its next meeting.
 
Sebi had invited public comment on the draft guidelines for REITs, which would allow people to invest in real estate in an organised manner.
 
He said a sub-committee of the Primary Market Advisory Committee had gone through various issues of reducing the cost and time of initial public offers and submitted its report, which will be considered sometime in February.

Damodaran said there would be further rationalisation of fees related to mutual funds and that the objective was to make mutual funds cheaper.

The new regulations seek to consolidate the common requirements for intermediaries' registration and put in place a comprehensive framework prescribe obligations.

Commenting on the recent stock market turmoil, Damodaran said it has nothing to do with the margining as is time-tested. "Brokers have over-extended themselves, investors have overextended themselves. If people have over-extended, they have only themselves to blame," he said.