Sebi may direct MFs to shift all investments to listed securities
With an aim to safeguard mutual fund (MF) investors from high-risk assets, markets regulator Sebi wants fund houses to shift all investments to listed or to-be-listed equity and debt securities in a phased manner, and reduce exposure to unrated debt instruments from 25 per cent to only 5 per cent.
Exposure to risky debt securities has emerged as a major risk for capital market investors, including those coming through the MF space, and the regulator has been making efforts to enhance its regulatory safety net against such risks.
Taking forward certain decisions approved by Sebi’s board earlier in June, the regulator has now finalised draft amendments to the prudential norms for MF schemes governing investment in debt and money market instruments.
Besides, further amendments have been proposed for approval of Sebi’s board at its next meeting later this month, officials said.
There will be a fresh proposal to reduce the existing overall limit for investment of MF schemes in unrated debt instruments, except those for which specific norms are separately provided, from 25 per cent to 5 per cent. Further, the existing provision of the single issuer limit of 10 per cent for investment in unrated debt instruments has been proposed to be dispensed with, an official said.
However, the official said these proposed limits may need to be reviewed periodically by Sebi after taking into account the market dynamics and participation of MFs in unrated debt securities.
Among other decisions to have in-principle approval and that need to be incorporated in the amended norms, valuation of debt and money market instruments based on amortisation will be dispensed with and shift completely to mark-to-market valuation with effect from April 1, 2020.