Market watchdog SEBI has advised fund houses to reassess their risk management policy related to fixed income schemes.
In an email sent to AMC CEOs on September 11, the regulator advised fund houses to reduce concentration risk in their fixed income portfolios, confirmed two senior AMC officials.
SEBI has also asked fund houses not to rely only on external research/ratings and recommended them to do their own research before buying any instrument.
This increased scrutiny by SEBI has come in the wake of Amtek Auto episode, said fund officials.
Recently, SEBI had also asked fund houses to disclose their holdings in Jindal Steel & Power after rating agency ICRA cut the company’s rating to ‘negative’.
Dwijendra Srivastava, Chief Investment Officer – Debt, Sundaram Mutual Fund says, “Our investment norms are much stricter than what SEBI has prescribed. There is a fear in the market but it will pass. Investors can invest in safer debt funds like PSU bond funds, government securities funds and liquid funds.”
Meanwhile, fund houses have become proactive in reassuring distributors and investors after the rating agencies downgrade of Amtek Auto paper. In a letter sent to investors and distributors, Maneesh Dangi, Co-CIO, Birla Sun Life MF, had said, “We like entities that belong to sectors that have already defined regulations and strong regulators. We avoid loosely regulated (and hence open to the potential risk of entry of a regulator) sectors. We prefer companies that are part of large diverse groups. Hence we may invest in smaller companies of a large group where otherwise if it were a standalone company we may have avoided the same in case we believe that the group would support the company due to moral / economic / strategic reasons.”
Currently, a fixed income scheme can invest up to 15% in a single NCD, which can go up to 20% with trustee approval. Also, a debt scheme can’t invest more than 30% in a single money market instrument. Fund managers say that the risk in liquid funds has come down drastically now. Prior to 2008, a debt scheme was allowed to invest up to 100% of net assets in a single money market instrument.
SEBI has already prescribed norms for fund houses to avoid concentration risk.
In 2012, SEBI had asked fund houses to cut down their exposure to a single sector to 30%. “AMCs shall ensure that total exposure of debt schemes of mutual funds in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, T-Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of the scheme,” states SEBI circular issued in September 2012.
