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MF News SEBI modifies circular on scheme categorisation and rationalization

SEBI modifies circular on scheme categorisation and rationalization

Fund houses are required to submit their proposals to SEBI by December 15.
Padmaja Choudhury Dec 4, 2017

Based on representation received from AMFI, SEBI has decided to partially modify the circular on categorization and rationalization of mutual fund schemes.

The first modification is the addition of a clause that AMFI has to adhere to while preparing the list of stocks. SEBI has added a fourth clause that says that AMFI will now have to take average full market capitalization of the previous six month of the stocks.

The new circular clarifies that Macaulay duration shall be at portfolio level.

The circular also considers that fund managers may reduce the portfolio duration in case he has a view on interest rate movements in light of anticipated adverse situation. In this situation, the AMC shall be required to mention its asset allocation under such adverse situation in its offer documents.

“Whenever  the  portfolio  duration  is  reduced  below  the  specified floors of 3 years and 4 years in respect of medium duration fund and medium to long duration fund respectively, the AMC shall be required to record the  reasons  for  the  same  with  adequate justification  and maintain  the same for  inspection,” the circular states. 

Further, corporate bond funds would be permitted to invest in AA+ and above rated instruments. Accordingly, the credit risk fund would now also be permitted to invest in AA and below rated instruments (excluding AA+ rated instruments). Earlier, the circular stated that corporate bond funds will invest at least 80% of its assets in the highest rated instruments while credit risk fund had to invest at least 65% of its asserts in papers below  the highest  rated instruments.

 

Here is the complete list of the categories that are modified along with the original characteristics.

Category of schemes

Scheme characteristics as per the original circular

Modified scheme characteristics

Medium Duration Fund

Investment in Debt & Money Market instruments such that the Macaulay duration  of  the  portfolio  is  between 3 years –4 years

Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years –4 years. Portfolio  Macaulay  duration  under anticipated  adverse situation is 1 year to 4 years

Medium to long duration fund

Investment in Debt & Money Market instruments such that the Macaulay duration  of  the  portfolio  is  between 4 –7 year

Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 years –7 years. Portfolio  Macaulay  duration  under anticipated  adverse situation is 1 year to 7 years

Corporate Bond Fund

Minimum  investment  in  corporate bonds-80%  of total  assets  (only  in highest rated instruments)

Minimum    investment    in corporate bonds –80% of total assets (only in AA+ and above rated corporate bonds.).

Credit Risk Fund

Minimum  investment  in  corporate bonds-65%of     total     assets (investment  in below  highest  rated instruments)

Minimum    investment    in corporate  bonds –65%  of total  assets  (only  in  AA*and below  rated corporate bonds)

Banking and PSU Fund

Minimum     investment     in     Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions-80% of total assets

Minimum    investment    in debt  instruments of  banks, Public Sector Undertakings, Public Financial   Institutions   and Municipal  Bonds –80%  of total assets

Floater Fund

Minimum investment in floating rate instruments-65% of total assets

Minimum    investment    in floating   rate   instruments (including fixed     rate instruments   converted   to floating    rate    exposures using swaps/ derivatives)–65% of total assets

 

 

Mutual Funds are required to submit their proposals to SEBI by December 15. All other conditions of the circular remains unchanged.

 

 

 

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