The Securities and Exchange Board of India (SEBI) on Wednesday proposed to double the investment limit for retail investors to R2 lakh in public issues, to increase investor base and encourage participation.
"It is proposed to enhance the limit prescribed for defining a retail individual investor in a public issue from the existing R1 lakh to R2 lakh," SEBI said in a draft regulation on which it invited comments from stakeholders by September 3.
The current limit of R1 lakh for retail investors was fixed five years ago in March 2005.
Justifying its proposal, the market regulator said the limit for retail investors needed to be enhanced in view of the increase in inflation rate from 4 per cent in 2005 to the current 12 per cent and the rise in the benchmark Sensex from 8,000 points to around 18,000 during the same period.
"This means that the retail individual investors now buy a lesser number of securities with R1 lakh than they would buy with the same amount in 2005," the market regulator said.
Market watchers welcomed the proposal, saying the regulator is keeping up with current trends. "The limit of R1 lakh is outdated. Increasing the limit to R2 lakh will increase the participation of retail investors and bring in more dept in the market," says Aseem Dhru, managing director and chief executive officer, HDFC Securities.
At present, most applications from retail investors come in the range of R75,000 to R1 lakh, SEBI said.
Since 35,000 to 70,000 retail investors participate in an issue, it becomes difficult for companies coming out with large issues to seek adequate subscription for quota for individual investors.
Under Issue of Capital and Disclosure Requirements Regulations, 35 per cent of the public issue has to be allocated to retail individual investors.
SEBI, meanwhile, in a seperate circular asked mutual funds to disclose investments in equity derivatives and said the combined exposure in equity, debt and derivatives should not exceed the net asset of a scheme. It has also restricted mutual funds from selling an equity product that involves betting on future prices or an equity option.
The rules will be effective from October 1 for all new schemes as well as the existing schemes, it added.