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.