In a bid to make debt funds more secure, SEBI has further tightened norms on Wednesday.
In a circular, SEBI said that if fund houses extend the maturity of a money market or debt security, they have to report it to valuation agencies and credit rating agencies (CRAs) immediately, along with the reasons.
“Any changes to the terms of investment, including extension in the maturity of a money market or debt security, shall be reported to valuation agencies and SEBI registered CRAs immediately, along-with reasons for such changes,” the circular said.
The recent circular modifies an earlier circular issued on September 24. In that circular, SEBI had said, “Any changes to the terms of investment, which may have an impact on valuation, shall be reported to the valuation agencies immediately.”
Experts feel that the recent modification is a reiteration of SEBI’s disapproval to Essel Group type incidents, where the terms of loans given by mutual funds to the group’s promoters were changed and date for full payment was extended.
In February this year, a few fund houses had extended Eseel Group’s payment obligations deadline. These fund houses did not sell shares pledged by the Zee group to avail the loan from these fund houses.
Fund houses reasoned that if they sell the pledged shares, prices of these stocks could crash and they might not recover their payment. However, SEBI was clearly not happy with this move. SEBI Chairman Ajay Tyagi had said, “There cannot be any standstill agreement between mutual funds and their borrowers. All entities need to follow the (mutual fund) regulations."
