In its gazette notification published today, SEBI has restricted exposure for mutual fund schemes to a single issuer in debt instruments to 10% of NAV which are rated not below investment grade.
This limit can be raised to 12% of NAV after taking trustee approval. Currently, this limit is 15% of NAV.
Debt instruments include money market instruments and non-money market instruments. Investments in government securities, treasury bills, collateralized borrowing and lending obligations and mortgaged backed securitized debt are exempted from this rule.
“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,” Dwijendra Srivastava, CIO - Debt, Sundaram Mutual Fund had earlier told Cafemutual.
The new norms will be applicable to all new schemes and fresh investments by existing schemes and fund houses have to comply with these norms within one year from today. Existing close ended schemes are not required to sell their investments to comply with the new rules. However, if they sell investments then their fresh investments will be subject to the new rules.
