Sebi takes steps to boost investments through REITs, AIFs, social stock exchanges

On Saturday, November 25th, the Securities and Exchange Board of India (Sebi) made significant decisions to promote investments through Small and Medium REITs, enhance measures to protect investor interest in Alternative Investment Funds (AIFs), provide flexibility for not-for-profit organizations in raising funds through social stock exchanges, and establish a regulatory framework for index providers.

Representative image

Promoting Investments through Small and Medium REITs

The board of Sebi approved the creation of Small and Medium Real Estate Investment Trusts (SM REITs) to expand the market and enable more retail investors to have fractional ownership in REIT units. Sebi Chairperson Madhabi Puri Buch emphasized the objective of making REITs more accessible to small investors and expressed openness to exploring the creation of more such products in the future.

Enhancing Investor Protection in AIFs

To strengthen investor protection in AIFs, Sebi decided that all fresh investments made by an AIF after September 2024 should be held in demat form. This measure aims to facilitate ease of compliance and enhance transparency. Additionally, the mandate for the appointment of custodians will be extended to all AIFs, ensuring that all investors' assets are held safely and securely.

Providing Flexibility for Not-for-Profit Organizations

Sebi has taken steps to provide more flexibility for not-for-profit organizations (NPOs) to raise funds through social stock exchanges. The minimum issue size in the case of public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on the exchange will be reduced to Rs 50 lakh from Rs 1 crore, and the minimum application size will be cut to Rs 10,000 from Rs 2 lakh. This reduction in application size will enable wider participation of subscribers, including retail investors.

Furthermore, the nomenclature of "Social Auditor" will be changed to "Social Impact Assessor" to provide comfort to NPOs and convey a positive approach towards the social sector. NPOs will also be permitted to disclose past social impact reports in the fundraising document, subject to the disclosure of key parameters such as the number of beneficiaries, cost per beneficiary, and administrative overhead.

To expand the pool of eligible NPOs, entities registered under a certain section of the Income Tax Act, 1961, will now be permitted to register and raise funds through the issuance and listing of ZCZP on the social stock exchange.

Introducing Regulatory Framework for Index Providers

Sebi will introduce a regulatory framework for index providers to foster transparency and accountability in the governance and administration of financial benchmarks in the securities market. The regulations will provide a framework for the registration of entities that license significant indices, which will be notified by Sebi based on objective criteria. This decision was driven by the increasing inflows into passive funds, which have gained popularity in Western markets.

Delisting Norms and Trading Time Extension

In response to a query about changes in delisting norms, Sebi Chief Madhabi Puri Buch stated that the board did not take up the matter as more data is required. The board suggested seeking more data-driven inputs from the market, as the current inputs were patchy. Sebi is revisiting the proposals and seeking additional data.

Regarding the extension of trading time, Buch mentioned that extensive discussions have been held with key market intermediaries, including exchanges, clearing corporations, and investors. However, no clear consensus has emerged on the need for extending trading hours. The views of the broking and investor communities are yet to be clearly formed.

The decisions taken by Sebi on Saturday represent significant steps towards promoting investments, enhancing investor protection, and fostering transparency and accountability in the Indian securities market. These measures aim to create a more inclusive and efficient investment landscape, benefiting retail investors, not-for-profit organizations, and the broader economy.