SEBI’s decision to tighten the investment norms for debt funds will help fund managers diversify risk but it can mean lower returns for investors.
The market regulator has mandated fund houses to reduce exposure in single issuer (individual company) from 15% of NAV to 10% of NAV.
On exposure to group companies, the market regulator has put a cap of 20% of NAV. SEBI has also reduced exposure limit to a single sector to 25% of NAV from the current 30% of NAV. In addition, the exposure limit to Housing Finance Companies (HFCs) has been brought down to 5% of NAV from 10% of NAV.
We quizzed fund managers on the possible impact of these norms on debt funds.
R Sivakumar, Head - Fixed Income, Axis Mutual Fund says, “FMPs and ultra-short term bond funds will be unaffected. But open-end schemes will have to rejig their portfolios. So the new guidelines may affect open end schemes.”
Lakshmi Iyer, CIO - Debt & Head - Products, Kotak AMC feels that the new norms can bring down returns in debt funds. “If you look at the AAA segment today, the cap is at 15%. So if I were to create an AAA portfolio, I have minimum requirement of seven companies. With this guideline, the exposure has come down to 12% which means I need nine companies. The challenge is that there are not many AAA companies available. So if we want to create AAA portfolio three will be some dilution in returns.”
Dwijendra Srivastava, CIO - Debt, Sundaram Mutual Fund says that the new norms will help reduce risk in debt funds, “The new norms will allow MFs to lend to more entities. Currently, the number of entities you can invest is ten. So the new norms will help diversify our portfolio and reduce risk.”
Vidya Bala, Head - MF Research, Fundsindia says, “SEBI has set these guidelines in the right direction and the exposure limit is good. Although there will be no immediate effect, fund managers have to dig deeper to find paper in income funds in the medium to long term period.”
