Mumbai: Multiple companies have defaulted on their debt papers off late, to which several mutual funds (MFs) had sizeable exposure. To safeguard investor interests, the Securities and Exchange Board of India (SEBI) may revisit regulations relating to mutual funds. Finance Ministry sources said the move comes after recent defaults in various fixed maturity plans (FMPs) by several mutual funds.
“Closed-ended fixed maturity plans pose serious risk to investors as there is no real time monitoring and investors are dependent only on the fund manager. We are discussing these issues and how regulatory loopholes can be plugged,” a senior official said to reporters.
The market regulator may soon review investment restrictions imposed on funds at the issuer level and sector level. The limits on the exposure that funds can take in debt securities issued by a single company and a corporate group could be reduced to provide higher diversification, sources said.
Presently as per SEBI rules, asset management companies need to ensure that the total exposure of debt schemes of mutual funds to a group does not exceed 20 per cent of the net assets of the scheme. It may be extended to 25 per cent of net assets of the scheme with the prior approval of the Board of Trustees of the respective fund house.
The regulator is closely watching the process followed by rating agencies in assigning credit ratings to some of these securities. Regulatory norms for investment in unrated debt papers may also be tightened further, the sources said.
Over the last month, there has been a debate on mutual fund exposure to illiquid debt papers. Though MF exposure to IL&FS Group companies in 2018 made the industry skip a heartbeat, acts by Kotak Mutual Fund and HDFC MF to their investors, earlier this month, caused a scare in the market too.