In the Budget for 2019-2020, Finance Minister Nirmala Sitharam had put forth the idea of the Social Stock Exchange (SSE). However, it only came to life when in October 2021 announced its formation. So what is this exchange, who will benefit, and more importantly how can you as an investor can benefit from it? Let's answer those questions in today's pill.
What is this exchange and who will benefit from it?
SSE is basically a platform where an investor can invest in social cause companies either profit or non-profit. The sole reason for creating this exchange is to let these companies raise funds and have access to a larger pool of investors. However, there are quite a few limitations/criteria so as to who can register themselves as a Social Enterprises (SE). A technical group (TG) was set up by SEBI in May 2021, and they came out with three filters in which a company should appear if they wish to register themselves as a SE.
According to TG, it consists of
(a) Eligible social objectives for the activities of the SE: The TG has drawn up a list of 15broad areas of eligible social objectives for the activities that a SE can be engaged in. (b) The target population segment or region. (c) Predominance of the eligible activity in overall work of the SE
In other words, A company or entity has to fall under the 15 categories as specified by TG, it shall target underserved or less privileged population segments & the more important it shall derive At least 67% of the immediately preceding 3-year average of the SE’s revenues & expenditure shall account for providing the eligible activities to members of the target population. Also, the customer base that it serves should consist of at least 67% of the target audience.
The eligible SE can raise capital by issuance of equity shares which are like non-dividend bearing equity capital. Other products could be zero-coupon zero principal bonds, social/development impact funds, or mutual funds.
How can you as an investor can benefit from it?
While investing in the traditional stock exchange can fetch you great returns in short term, investing in these SEs can give you bang for your buck. Also, this is a great way to donate money. Earlier even if an investor wanted to invest in a Non-Profit Organization (NPO) as a way of capital infusion rather than donate, he/she had no way to get info about the NPO in the public domain, which is now poised to change.
Although this idea is in a much-advanced stage now, there is no clarity on Whether these SEs which can be a trust, sole proprietary, or LLP will need to convert themselves to Company, if yes, what would be the taxation angle? What would be the limit to which funds can be raised? and many other important questions which need to be addressed. Nonetheless, it is an interesting concept, but what is remaining to see is How SEBI will pull it off?
Do let us know your thoughts on the above topic in the comment section and let a healthy conversation going.
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The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.