Sebi notifies stricter MF norms, reduces single issuer limit

To safeguard investor interest, capital markets regulator Sebi has notified a stricter set of norms for mutual funds , wherein it has capped the investment limit in bonds of a single company at 10 per cent.

The move comes 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 other distressed firms.

Under the norms, mutual fund (MF) houses will not be able to invest more than 10 per cent of a scheme's corpus in debt securities of a single company. However, it can be extendable to 12 per cent of net assets value (NAV) after trustee's approval. Currently, the limit is 15 per cent.

"A MF scheme shall not invest more than 10 per cent of its NAV in debt instruments comprising money market instruments and non-money market instruments issued by a single issuer which are rated not below investment grade by a credit rating agency authorised to carry out such activity under the Act," Sebi said in a notification dated February 12.

"Such investment limit may be extended to 12 per cent of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of directors of the asset management company," it added.

The investment within such limit can be made in mortgaged backed securitised debt which are rated not below investment grade by a credit rating agency registered with Sebi.

However, such limit will not be applicable for investments in government securities, treasury bills and collateralised borrowing and lending obligations.

The new norms-Securities and Exchange Board of India (Mutual Funds) Regulations, 2016-has come into force from February 12, when the regulator notified it.

The regulator said that schemes "already in existence shall within an appropriate time and in the manner, as may be specified by the Board, conform to such limits."