Sebi Reforms Boost Mutual Fund Penetration and Real Estate Investment

MUMBAI: The Association of Mutual Funds in India (Amfi) has welcomed the slew of reforms announced by the Securities and Exchange Board of India (Sebi) to increase the penetration of mutual funds. These reforms include offering cash incentives to first-time women investors and allowing mutual fund investments in Real Estate Investment Trusts (Reits) as equity.

Amfi stated that the new incentive structures to expand mutual fund penetration beyond the top 30 cities and among women investors align closely with its financial inclusion objectives.

The reduction in the maximum exit load from 5% to 3% further reinforces Sebi’s commitment to investor protection and transparency. The reclassification of Reits as equity for mutual fund investments is also a timely step that will enhance diversification opportunities and support the growth of real estate as an investible asset class.

Taken together, these initiatives will broaden investor participation, strengthen the long-term health of the mutual fund industry, and strike a thoughtful balance between regulatory rigor, investor protection, and ease of doing business. Amfi chief executive Venkat Chalasani told TNIE on Saturday, “These reforms are a significant step forward in promoting financial inclusion and protecting investors while fostering the growth of the mutual fund industry.”

Incentivizing first-time women investors in mutual funds will go a long way in increasing their participation, which will help them build their savings and financial security. Sebi announced these measures after the latest board meeting held on Friday, aimed at enhancing investor protection and financial inclusion in the mutual fund space.

The measures include a more transparent and sustainable incentive structure for mutual fund distributors. The board decided to reduce the maximum permissible exit load from 5% to 3%, revise the incentive structure for distributors for new inflows from B-30 cities, and introduce an incentive structure for distributors for on-boarding new women investors.

Sebi has provided incentives to distributors only for investment/inflows from new individual investors (new PAN) from B-30 cities. The incentive will be provided to the distributor at the industry level and is capped at 1% of the first application amount (in case of lump sum investment) or total investment during the first year (in case of SIPs), subject to a maximum of Rs 2,000.

The present norms permit mutual fund schemes to charge a maximum exit load of 5%, which gets credited back to the scheme. However, mutual funds generally charge exit loads in the range of 1-2%. Reducing the maximum exit load aligns the regulatory requirement with the prevailing industry practice. Setting the maximum cap at 3% was found appropriate to strike a better balance between investor protection and flexibility for schemes with exposure to less liquid securities, Sebi chairman Tuhin Kanta Pandey said.

Considering the scope of gender inclusion in the mutual fund space, it was decided to incentivize distributors to create awareness and promote financial inclusion among women investors. Additional commission shall be paid to distributors for investment/inflows from new women individual investors (new PAN) at the industry level. The computation and payment of such commission shall be on the same lines as the B-30 incentive.

Meanwhile, the Reits Association has welcomed the Sebi move to classify real estate investment trusts (Reits) as equity for the purpose of inclusion in market indices. This significant step marks a milestone in strengthening the Reits ecosystem and aligns with global best practices where Reits are part of equity indices. This move is expected to enhance the depth of the Reits market and accelerate the growth of these instruments, contributing to improved liquidity and broader investor participation.