SEBI has recently released norms for debt ETFs and index funds that restricted any single issuer from having more than 15% weight in the index that they replicate.
The circular, released on Friday, has come ahead of the proposed issue of the first debt ETF catering to the borrowing needs of public sector enterprises. Edelweiss AMC will manage this debt ETF.
Here are some other notable norms:
- The constituents of the index needs to be aggregated at the issuer level
- The index should have at least 8 issuers
- The rating of the constituents of the index needs to be investment grade
- The constituents of the index has a defined credit rating and maturity as specified in the index methodology
- If the rating of an issuance falls below the investment grade or rating mandated in the index methodology, rebalancing by debt ETFs and index funds needs to be done within 5 working days
On replication of the index by debt ETFs and index funds:
- Debt ETFs and index funds to replicate the benchmark index completely
- In case this replication is not feasible due to non-availability of issuances of the issuer forming part of the index, the debt ETFs and index funds will be allowed to invest in other issuances issued by the same issuer having deviation of (+/-) 10% from the weighted average duration of issuances forming part of the index, subject to single issuer limit
- Further, at aggregate portfolio level, the duration of debt ETF and index fund need not deviate (+/-) 5% from the duration of the index.
- Even after this, if the replication is not feasible, the Debt ETFs/Index Funds can invest in issuances of other issuers within the index having duration, yield and credit rating in line with that of the non-available issuances of the issuers forming part of the index, subject to single issuer limits
- The duration of debt ETF and index funds shall not deviate (+/-) 5% from the duration of the index
- The rationale for any deviation needs to be recorded
SEBI said that these norms will not be applicable to debt ETFs and index funds, which only track debt indices having constituents as government securities, treasury bills and tri-party repo.
