SEBI has instructed credit rating agencies (CRAs) to give one-month notice to investors before withdrawing ratings from any open end mutual fund.
In a circular, SEBI has said, “Open ended mutual fund schemes being perpetual in nature and having no specified maturity, withdrawal of rating of such schemes is permitted. However, as units of such schemes are held by many investors, such ratings shall be placed on notice of withdrawal for at least 30 days, which shall be publicly available on the CRA’s website.”
In addition, CRAs will have to cite appropriate reasons on withdrawal of rating. Further, CRAs will have to issue a press issue before such a withdrawal.
Typically, credit rating agencies incorporate assessment of debt funds depending on investment objectives, management and creditworthiness of the portfolio. Though credit rating gives confidence to investors and distributors, the fund selection largely depends on the portfolio of a scheme, believe experts.
“There are many mutual fund schemes with good portfolio quality but without a rating of the scheme. Investors and distributors generally look at the underlying portfolio and the rating of the individual instruments,” said Joydeep Sen, independent bond market analyst and author.
Commenting on the move, he said, “Going by the intentions of the regulator, it will help the investors by giving reaction time if they prefers to exit the scheme. However, investor should raise a query with the AMC on the reason for the withdrawal of the rating before exiting the scheme.”
Further, the market regulator has asked CRAs to withdraw their ratings after receiving request from AMCs. Currently, very few AMCs use CRAs to rate their funds. The primary purpose is to cater to institutional clients as such clients have internal guidelines for selecting a fund for investments.
