SUBSCRIBE NEWSLETTER
  • Change Language
  • English
  • Hindi
  • Marathi
  • Gujarati
  • Punjabi
  • Tamil
  • Telugu
  • Bengali
  • MF News SEBI tightens liquid fund norms to mitigate risks

    SEBI tightens liquid fund norms to mitigate risks

    The market regulator has introduced mark to market valuation of debt securities having maturity over 30 days.
    Team Cafemutual Mar 1, 2019

    After introduction of side-pocketing in mutual funds, SEBI has now tightened norms for liquid funds following a series of credit episodes.

    In its board meeting held today in New Delhi, SEBI has decided to introduce mark-to-market valuation for debt securities having maturity of of 30 days and more. Simply put, liquid funds may become more volatile going forward.

    SEBI said, “The residual maturity limit for amortization based valuation by mutual funds shall be reduced from existing 60 days to 30 days.”

    Currently, SEBI rules say that fund houses have to do mark-to-market valuations of securities having maturity of 60 days and more.

    Debt market experts believe that fund managers will reduce average maturity on their portfolio to less than 30 days to avoid doing mark-to-market valuation. Hence, they would sell debt instruments having maturity between 31 days and 60 days.

    Debt market expert Kirtan Shah, COO, StreetAhead said, “Liquid funds have been holding debt instruments with less than 60 day residual maturity so that they don’t have to mark-to-market it which helps in reducing volatility in liquid funds. As per the new rule, the market to market (amortisation) limit has been reduced to 30 days which means liquid funds will have to do mark-to-market for debt having residual maturity between 31 and 60 days. To avoid this, liquid funds will want to move to papers with residual maturity of less than 30 days. This will lead to increase in yield for papers with residual maturity between 31 and 60 days and fund turnover will increase. With stamp duty coming into picture, we can expect a marginal decrease in liquid fund returns.”

    SEBI further said that the difference between traded price and price quoted by rating agencies of a security should not exceed 0.025%. This was reduced from 0.1%.

    SEBI has asked AMFI to appoint valuation agencies to provide valuation of money market and debt securities rated below investment grade. Currently, most fund houses rely on ratings by agencies to derive NAV.

    However, AMCs can deviate from valuation provided by agencies by giving rationale for such deviations.

    Among other key decision for mutual funds is allowing fund houses to come up with commodity mutual funds and PMS. In India, mutual fund houses were not permitted to invest in commodities other than gold. However, a few fund houses have thematic funds, which invest in companies engaged in commodities business.

    Commodity funds would be able to invest in a broader spectrum of agricultural, metal and mining commodities such as food crops, spices, fibres, copper, aluminium, oil, gold, silver and platinum.

     

    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

    Click to clap
    Disclaimer: Cafemutual is an industry platform of mutual fund professionals. Our visitors are requested to maintain the decorum of the platform when expressing their thoughts and commenting on articles. Viewers are advised to refrain from making defamatory allegations against individuals. Those making abusive language or defamatory allegations will be blocked from accessing the web site.
    2 Comments
    murari · 5 years ago `
    One of the IFAs That I spoke says that SEBI is thinking of stopping mutual funds completely to mitigate risks. Is it true
    rakesh · 5 years ago
    Very true..No MF. No Subject to market risk..Mutual Fund Sahi Hai..Par Return Nahi Hai...
    Reply
    Login or Sign up to post comments.
    More than 2,07,000 of your industry peers are staying on top of their game by receiving daily tips, ideas and articles on growth strategies. Join them and stay updated by subscribing to Cafemutual newsletters.

    Fill in the below details or write to newsdesk@cafemutual.com and subscribe to Cafemutual Newsletter now.