SEBI has turned its focus on debt investments of mutual fund houses. A senior industry official requesting anonymity shared that SEBI has been probing fund houses on their debt investments during the annual audit.
Another senior official said that SEBI wants to evaluate the credit risk evaluation framework employed by fund houses. It is also scrutinizing trades made by the fund managers and their investment rationale.
Also, the market regulator is said to have asked fund houses to submit report on the risk mitigation process followed by them.
This has come after a series of credit events. First, the sudden default by AAA rated IL&FS led to credit squeeze across the system. In the aftermath, DHFL suffered from liquidity freeze and subsequently rating downgrade. Next Zee Group came under scanner when it was unable to fulfil its loan against share obligations. The shock then spread to other companies with high promoter pledges like Reliance.
In the meanwhile, the Zee Group requested for moratorium. The move by some fund houses to delay or partially withhold FMP payments has not apparently gone down well with the regulator.
Earlier, a few media reports had said that SEBI is investigating debt deals including inter scheme debt deals by mutual funds to check if such deals have led to prop up of prices, benefiting institutional investors.
Overall, the recent shocks in the debt category, which is traditionally considered a safe investment option seems to have increased SEBI’s focus on the category, said industry officials.
