“The schemes which have been approved earlier but not yet launched will also have to be amended accordingly,” Sebi chairman C B Bhave after its board meeting. The guidelines come in the wake of huge redemptions in fixed maturity plans (FMPs) of mutual fund houses in October. Though FMPs by the virtue of their structure are closed-ended as investors are expected to stay in the scheme till maturity what had been happening earlier was that large investors (mainly corporates) exited them when in need of cash. Fund houses had been pitching for a higher exit load instead of a complete closure of exit options.

The regulator said that close-ended schemes needed to be listed on the bourses. It also mandated that for such schemes the underlying assets would not have a maturity beyond the date on which the scheme expires. “The October incident has thrown up a lot of issues and this is just one of those. We are also looking into the underlying assets of liquid funds,” said Bhave.

“The new steps will augur well for the mutual fund industry which underwent massive turbulence in the form of huge redemptions in the month of October,” said a mutual fund source. The MF industry witnessed a fall of Rs 97,000 crore in assets in October.

Some other significant decisions were also taken in the board meeting today. The validity of observation letter issued for public and/or rights issue has been extended to one year from the present 90 days. “Companies had approached the Sebi that under the present market conditions they are finding it difficult to bring out an IPO or a rights issue. Consequently, it has been decided to extend the the validity of the observation letter,” said Bhave.

The Sebi has also approved certain policy measures pertaining to rights issues, which include enabling electronic rights entitlement, which can be traded electronically. It has also been mandated that a company can use the funds raised through an issue only after the share allotment has been completed. “To lessen paper work, it has also been decided that investors who hold stocks of a company in the demat form will be given a demat option for rights issue,” said Bhave.

The Sebi board also decided to adopt a code to avoid conflict of interest for the members of the board and the code will be put up in the public domain by publishing it on the Sebi website before December 12, 2008.