Sebi to broaden definition of strategic investor under REIT, InvIT norms

Mumbai, Sep 12 (PTI) Sebi on Friday decided to broaden the definition of 'strategic investor' under the REIT and InvIT norms by including QIBs and certain categories of FPIs to attract more institutional capital.

The Sebi board also cleared a proposal for reclassifying REITs (Real Estate Investment Trusts) as "equity" and retaining the "hybrid" classification for InvITs (Infrastructure Investment Trusts) for the purpose of investments by mutual funds and Specialised Investment Funds.

These proposals, approved by Sebi in its board meeting here, could boost higher investors' participation in these investment vehicles.

Sebi said its board approved the proposal of amending InvIT/REIT norms to widen the investor base for applying under the strategic investor category in a public issue of such trusts.

"This will promote ease of doing business by enabling InvITs/REITs to attract capital from more investors under the Strategic Investor category," Sebi said.

The regulator believes that the current definition of strategic investor under the REIT and InvIT framework is narrow and excludes several large institutional investors, such as pension funds, provident funds, and insurance funds.

These entities, though active participants in REITs and InvITs due to their preference for long-term and stable income-generating assets, were not eligible to be categorised as strategic investors before the amendments.

To address this gap and promote ease of doing business, the Sebi board approved a proposal to amend the definition of strategic investor to provide that an entity that is considered a QIB (Qualified Institutional Buyer) may apply as a strategic investor.

This includes a wider pool of institutions, such as public financial institutions, pension and provident funds, alternative investment funds, state industrial development corporations, family trusts and intermediaries registered with a net worth of more than Rs 500 crore; middle-layer, upper-layer and top-layer non-banking finance companies.

On facilitating enhanced participation of Mutual Funds in REITs and InvITs, Sebi board approved the amendments to mutual fund rules for "re-classifying REITs as equity and retaining the hybrid classification for the InvITs for the purpose of investments by mutual funds and Specialised Investment Funds".

The re-classification was proposed considering the characteristics of REITs, being more inclined towards equity, relatively more liquid, and to ensure alignment with global practices. InvITs, on the other hand, being products primarily privately placed with more stable cash flows and having lesser liquidity, the hybrid classification was proposed to be retained, Sebi said.

Following the re-classification of REITs, investment by mutual funds would be considered within the investment allocation limit for equity instruments and also make them eligible for inclusion in equity indices, thereby enabling enhanced investment by mutual fund schemes in REITs.

Further, as a result of equity classification of REITs, the existing investment limit applicable for both REITs and InvITs would now be exclusively available for InvITs, thereby facilitating growth in this segment also.

To enhance investor protection and promote financial inclusion while ensuring a more transparent and sustainable incentive structure for mutual fund distributors, the board approved proposals for the reduction of the maximum permissible exit load from 5 per cent to 3 per cent.

Also, it has decided to introduce an incentive structure for distributors for onboarding new women investors, and a revised incentive structure for distributors for new inflows to the mutual fund industry from B-30 cities (Beyond the top 30 cities).

"The present regulatory framework permits mutual fund schemes to charge a maximum exit load of 5 per cent, which gets credited back to the scheme. However, Mutual Funds generally charge exit loads in the range of 1 per cent to 2 per cent. Hence, reducing the maximum exit load would align the regulatory requirement with the prevailing industry practice," Sebi said.

Setting the maximum cap at 3 per cent was found appropriate so as to strike a better balance between investor protection and flexibility for schemes having exposure to less liquid securities.

Regarding the incentive to the distributors for inflows from B-30 cities, Sebi has decided to revise the incentive structure and provide an incentive to distributors only for investment/inflows from new individual investors (new PAN) from B-30 cities.

The incentive will be provided to the distributor for new investors at the industry level, and such incentive will be capped at 1 per cent of the first application amount (in case of lump sum investment) or total investment during the first year (in case of SIP), subject to a maximum of Rs 2,000, Sebi said.

Considering the scope of gender inclusion in the mutual fund space, it was decided to incentivise distributors to create awareness and promote financial inclusion among women investors.

Additional commission would be paid to distributors for investment/inflows from new individual women investors at the industry level. The computation and payment of such commission shall be on the same lines as for the B-30 incentive. PTI AA SP SP BAL BAL