Capital markets regulator Securities and Exchange Board of India (SEBI) on November 29 came out with a new framework that will put a cap on the investment made by actively managed mutual fund schemes in a single company`s debt instrument. At present, such caps are already in place for passive funds such as Exchange Traded Funds (ETFs) and index funds in a bid to effectively manage the risk associated with such investments. SEBI said, "In order to avoid inconsistency in investment by mutual funds in debt instruments of an issuer, irrespective of the scheme being actively or passively managed, it has been decided to introduce a similar credit rating based single issuer limit for actively managed mutual fund schemes." Under this, a mutual fund scheme will not invest more than 10 percent of its Net Asset Value (NAV) in debt instruments and money market securities rated AAA by a Credit Rating Agency (CRA). The single issuer limit on such securities rated AA is set at 8 percent, while the same is 6 percent and below for A-rated securities. The investment limits may be extended by up to 2 percent of the NAV of the scheme with prior approval of the Board of Trustees and Board of Directors of the Asset Management Company (AMC), subject to compliance with the overall 12 percent limit. The new framework would be applicable for all the new schemes to be launched with effect from November 29 and existing schemes shall be grandfathered from these guidelines till the maturity of the underlying debt and money market securities.
Capital markets regulator Securities and Exchange Board of India (SEBI) on November 29 came out with a new framework that will put a cap on the investment made by actively managed mutual fund schemes in a single company`s debt instrument. At present, such caps are already in place for passive funds such as Exchange Traded Funds (ETFs) and index funds in a bid to effectively manage the risk associated with such investments. SEBI said, "In order to avoid inconsistency in investment by mutual funds in debt instruments of an issuer, irrespective of the scheme being actively or passively managed, it has been decided to introduce a similar credit rating based single issuer limit for actively managed mutual fund schemes." Under this, a mutual fund scheme will not invest more than 10 percent of its Net Asset Value (NAV) in debt instruments and money market securities rated AAA by a Credit Rating Agency (CRA). The single issuer limit on such securities rated AA is set at 8 percent, while the same is 6 percent and below for A-rated securities. The investment limits may be extended by up to 2 percent of the NAV of the scheme with prior approval of the Board of Trustees and Board of Directors of the Asset Management Company (AMC), subject to compliance with the overall 12 percent limit. The new framework would be applicable for all the new schemes to be launched with effect from November 29 and existing schemes shall be grandfathered from these guidelines till the maturity of the underlying debt and money market securities.
