Tightening the regulations with respect to management of debt funds, SEBI has put a cap today on exposure to debt instruments having special features like convertible bonds and perpetual bonds.
With this, SEBI has put 10% cap on exposure to bonds having special features like convertible bonds, Tier I and Tier 2 bonds. “These bonds have special features such as subordination to equity and convertible to equity upon trigger of a pre-specified event for loss absorption,” said SEBI.
Currently, there is no limit on exposure to such instruments.
Here are some key changes in the investment norms of debt funds:
- MFs can invest up to 10% of the total scheme corpus in such bonds
- They cannot invest more than 5% of the total scheme corpus in such bonds issued by single issuer. At AMC level, they can have total exposure of 10% to such bonds from single issuers
- Existing funds will have to reset their scheme to comply with the new norms. However, these funds can hold such securities until maturity
- Fund houses will have to incorporate changes in SID if they wish to create segregated portfolio with such securities in future
- Fund houses can consider 100 years to calculate valuation of perpetual bonds
The rules will come into effect from April 1.
