On November 25, 2023, The Securities and Exchange Board of India (Sebi) in its board meeting implemented several changes that improved accessibility and protection of investors in several sectors from NPOs to Fractional real estate platforms.
Mainly, the Sebi expanded fundraising opportunities for Not for Profit Organizations (NPOs) who can raise funds through the Social Stock Exchange (SSE). SSEs function as trading platforms, enabling social businesses and NPOs to raise funds from investors who want to invest towards a social cause. Specifically, Sebi revised the rules by which NPOs can issue Zero Coupon Zero Principal Instruments (ZCZP) on SSE. ZCZPs, are bonds but differ fundamentally form bonds as they aren't loans but similar to donations. Hence, borrowing entities need not pay interest (zero coupon) or principal (zero principal) at maturity. The minimum issue size was cut from Rs. 1 Crore to Rs. 50 lakh. So now, more NPOs can raise funds.
Sebi also reduced the minimum application size in case of public issuance of ZCZP from Rs 2 lakh to Rs. 10,000, thereby enabling wider participation of retail investors.
Additionally, NPOs were granted permission to disclose their past social impact reports in fundraising documents, adding transparency and accountability to the process.
Sebi To Directly Regulate Indices
Further, Sebi introduced a regulatory framework for index providers, aiming at improving transparency and accountability in financial benchmarks.
These index providers provide financial benchmarks in the stock market and important market indicators and Sebi's rules will set a framework for those who provide these indices and decide which all companies feature in these indices. The framework is set to cover only ' significant indices' based on objective criteria.
Fractional Ownership Real Estate Platforms To Be Regulated By Sebi
SEBI also established a regulatory framework for small and medium REITs (SM REITs), enabling these entities with a lower asset holding compared to existing REITs to create separate schemes for owning real estate assets. SM REITs only need to have asset value of at least Rs. 50 crore vis-à-vis minimum asset value of Rs. 500 crore for existing REITs.
SM REITs shall have the ability to create separate scheme(s) for owning real estate assets through special purpose vehicle(s) constituted as companies, the release said. The regulatory framework approved by the Board for SM REITs, inter – alia, provides for the structure of SM REITs, migration of existing structures meeting certain specified criteria, obligations of the investment manager including net worth, experience and minimum unitholding requirement, investment conditions, minimum subscription, distribution norms, valuation of assets, etc.
This move is anticipated to pave the way for more investors to enter into this form of property ownership.
Alternative Investment Funds Regulations Amendments
Moreover, amendments were made to Alternative Investment Funds (AIF) Regulations to streamline compliance and improve investor protection. An Alternative Investment Fund (AIF) is a special investment fund that gathers money from savvy investors, both from India and abroad, as an investor has to pool in at least Rs 1 crore each to invest.
Sebi mandated the dematerialization of fresh investments made by AIFs beyond September 2024. It also mandated the appointment of custodians by all AIFs, aiming at safeguarding of investor interests. Currently, this applies on schemes of Category III AIFs and to schemes of Category I and II AIFs with a corpus of more than Rs. 500 crore. AIFs may appoint a custodian who is an associate of the manager or sponsor of the AIF.