SEBI may revisit its risk management guidelines in mutual funds soon. SEBI has reportedly met a few MF CEOs last month to review of their risk mitigation approach of fund houses particularly in debt fund management.
This increased scrutiny by SEBI has come in the wake of IL&FS episode, said fund officials. A few rating agencies have downgraded short-term commercial papers of IL&FS worth Rs. 6,500 crore from [ICRA]A1+ to [ICRA]A4 and Rs. 5,225 worth of NCD (non-convertible debentures) from [ICRA] AA+ to [ICRA] BB. The rating agencies attributed this sharp downgrade to material weakening of the company’s liquidity profile.
In fact, SEBI has asked fund houses to share the status of their exposure in the debt instruments of IL&FS last month. August end portfolio data shows that mutual funds have over Rs. 2,400 crore worth of exposure in IL&FS securities and its subsidiaries. These investments spread across credit risk funds, liquid funds, FMPs, medium term funds, money market funds, short-term funds and hybrid funds.
A CEO who is aware of this meeting told Cafemutual that SEBI wants to ensure a minimum standard of due diligence or risk management system for all fund houses in various areas like fund management, operations, customer service, marketing and distribution, disaster recovery and business contingency, etc.
SEBI had come out with risk management guidelines for mutual funds in 2002.
Earlier, SEBI had cautioned fund houses on debt fund management and advised them to be careful while investing in debt instruments. The market regulator had advised fund houses not to rely on credit rating agencies and develop an in-house credit assessment team to mitigate such risks.