Lowers the amount of corporate debt that mutual funds can hold in individual firms and sectors at 10% to prevent investors from potential over-exposure
Mumbai : To safeguard investors’ interest, the Securities and Exchange Board of India tightened its norms for mutual funds’ exposure to riskier corporate bonds including by capping the investment limit in bonds of a single company at 10%.
The single sector exposure limit would also be lowered from 30% to 25%, while group-level investment limits of 20-25% have also been introduced for mutual funds investing in debt securities.
The issue of reducing the MF exposure limit for debt schemes caught Sebi’s attention after JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of Amtek Auto, while a few other fund houses have also faced similar problems with regard to corporate bonds of a few other distressed firms.
The regulator merged the credit exposure limits for money market instruments and non-money market instruments issued by a single issuer, reducing the cap to 10% from 15% of the net asset value of the scheme.
Fund houses would be given appropriate time to confirm that their schemes are in compliance with the new investment restrictions. SEBI said capping the exposure limits would mitigate risks due to high levels of exposure in the wake of events pertaining to credit downgrades, put mutual funds in a better position to handle adverse credit events, and provide mutual fund investors with enhanced diversification benefits.
In the case of housing finance companies, the cap is an additional 10 %. Now, the regulator has decided to slash this to 5%.
Asset management companies would be given appropriate time to ensure compliance with the revised guidelines, which would be applicable to all fresh debt investments by mutual funds, the regulator said.
SEBI also asked the trustee companies to continuously review the exposure of all the schemes of mutual fund in individual issuers, group companies and sectors.
All Government-owned PSU entities, PFI and PSU banks will be excluded from group level limits, Sebi said.
listing of green bonds
To help companies raise funds through green bonds for investment in renewable energy space, Sebi approved new norms for issuance and listing of such securities in the stock market.
The move is aimed at helping meet the huge financing requirements worth $2.5 trillion for climate change actions in India by 2030.
The regulator has made optional the requirement of an independent thirdparty review or validator, for reviewing or validating the pre and postissuance process, including project evaluation and selection criteria. India has lately seen issue of Green Bonds by some entities — Yes Bank, CLP India, Exim Bank of India and IDBI Bank.
