Sebi tightens norms for MFs exposure to riskier bonds

Sebi tightens norms for MFs exposure to riskier bonds

Sebi tightens norms for MFs exposure to riskier bonds.

  • February 17, 2016  
  • |  
  • UPDATED   11:59 IST

Markets watchdog Sebi today 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 per cent in a move to safeguard investors interest.

The single sector exposure limit would also be lowered from 30 per cent to 25 per cent, while group-level investment limits of 20-25 per cent have also been introduced for the mutual funds (MFs) investing in debt securities.

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.

The measures will mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades and put mutual funds in a better position to handle adverse credit events.

It would also provide mutual fund investors with enhanced diversification benefits, Sebi said in a circular.

The new norms will reduce sector exposure limits of debt schemes to 25 per cent from current 30 per cent.

In the case of housing finance companies, the cap is an additional 10 per cent. Now, the regulator has decided to slash this to five per cent.

Besides, fund houses will not be able to invest more than 10 per cent of a schemes corpus in debt securities of a single company. However, it can be extendable to 12 per cent of net assets value (NAV) after trustees approval. Currently, the limit is 15 per cent.

The revised investment restrictions at issuer, sector and group level would be applicable to all new schemes and fresh investments by existing schemes from today, while the existing schemes will have to comply with the new norms within a period of one year.