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  • MF News SEBI to set new rules for liquid funds on February 13

    SEBI to set new rules for liquid funds on February 13

    The market regulator is likely to introduce marked to market valuation of debt securities having shorter maturity and mandatory allocation to government and PSU bonds.
    Nishant Patnaik Jan 21, 2019

    After introduction of side-pocketing in mutual funds, SEBI is now focussed on tightening norms for liquid funds following IL&FS episode.

    A few fund officials told Cafemutual that SEBI has been considering introducing marked-to-market valuation for all debt securities. This means fund houses may have to do mark-to-market valuation of debt securities having maturity of less than 60 days. Simply put, liquid funds may become more volatile going forward.

    They said that SEBI is likely to share details of new regulations at its upcoming board meeting scheduled for February 13.

    A fund official who is on the Mutual Fund Advisory Committee said, “MFAC is currently deliberating on introduction of marked to market valuation of debt securities of maturities less than 60 days and having exposure of liquid funds in government and PSU bonds. The committee is expected to share its final proposals to SEBI by end of this month.”

    Introduction of mark-to-market valuation of all short term bonds would encourage fund managers to hold safer papers, said industry experts.

    SEBI rules say that fund houses have to do mark-to-market valuations of securities having maturity of up to 60 days and more. Liquid funds hold securities having maturity of up to 91 days. However, most liquid funds hold substantial securities having maturity of less than 60 days.

    Since debt securities are illiquid in nature and not traded like equities, mark-to-market valuation is challenging for fund houses since they have to quote NAV on a daily basis. Hence, most fund houses rely on ratings by agencies to derive NAV.

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    8 Comments
    Sanjay Bangar · 5 years ago `
    So, finally the safest scheme in MF will now have tough time ahead. Maybe end of era of liquid funds. Thank you SEBI, this is wonderful step as usual...
    Ravikumar · 5 years ago `
    There will be chaos for a short term in this segment, as there might be a flight of capital back to the banks. Good for the long term as there will be more accountability and transparency
    Anil Arora · 5 years ago
    SEBI is really working very hard to kill Mutual Fund industry. That is why I don't call it Regulator, I call it *"Strangulator"*
    Reply
    Pintu Aon · 5 years ago `
    Sebi is a pour full for market regularly frame work.But now we seen sebi gave the order by restroprective effect.As a result most of the AMC discut the existing achievement of IFA .sebi think for investors,very good.sebi cut the total expenses ,but not gave the any clarification to restroprective effect date .But sorry to say priviously achieve benefit by IFA cut by the AMC for sebi decisions,i.e my view of point it is beach of trust.At last I am sorry to say most of bank sell the mutual fund like bankind F/D,R/D,, but sebi nothing to do, mainly those bank have a Fund house,AMC.
    Pintu Aon · 5 years ago `
    Sebi is a pour full for market regularly frame work.But now we seen sebi gave the order by restroprective effect.As a result most of the AMC discut the existing achievement of IFA .sebi think for investors,very good.sebi cut the total expenses ,but not gave the any clarification to restroprective effect date .But sorry to say priviously achieve benefit by IFA cut by the AMC for sebi decisions,i.e my view of point it is beach of trust.At last I am sorry to say most of bank sell the mutual fund like bankind F/D,R/D,, but sebi nothing to do, mainly those bank have a Fund house,AMC.
    Sumit · 5 years ago `
    There is no point in investing in liquid fund now , it is better to park money in bank savings account which are giving 6 percent interest
    Narayanan · 5 years ago `
    As the NAVs of debt funds is on daily basis, how fund mager will arrive the Marked to Market...from what source data is made available...?
    Murarai · 5 years ago `
    I guess the mark to market is only for 90 days paper, which will be a small chunk of the corpus. Yet the interest rate risk is enough to make the corporates to move away from this . Now let me see what the AMCs tell now. All these days whenever SEBI tweaked the commissions , AMCs in one chorus would say " It is a positive move . Good for the industry. Now more inflows would come into the kitty etc., " The torture has gone beyond all acceptable limits . The paper work has increased manifold . No remuneration. What is this happening ? I have been in this business for 16 years. In one stroke, the lifeline has been cut-off. I have sent off all my staff and moved to a different field with great pain. It is a continuous regulation , day after day , till one day there won't be any more MF business. Now all my clients are under the mercy of AMC staff and let us see how the AMCs handle them. In a country where we have the freedom to question our beloved Prime Minister , we are not able to question a bunch of bureaucrats who can do what they want. They can have 7th pay commission benefits and more and more. It is as if distributors and their family are a disposable lot. Now the distributors should take a sabbatical and teach these people a lesson. Let them directly handle the market for a month. Sickening
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