SEBI has instructed fund houses to reduce reliance on rating agencies while investing in debt instruments. In addition, the market regulator has asked fund houses to set up in-house credit risk assessment mechanism before investing in fixed income securities. This will come into effect from May 1, 2016.
In a circular issued today, SEBI has said, “In order to ensure that MFs/AMCs are able to carry out their own credit assessment of assets and reduce reliance on credit rating agencies, all MFs/AMCs are required to have an appropriate policy and system in place to conduct an in-house credit risk assessment/due diligence before investing in fixed income products.”
SEBI Chairman U. K. Sinha had repeatedly cautioned mutual fund houses about credit risks in debt funds and advised them to be careful while investing in debt instruments. Expressing his concern over the recent Amtek Auto episode, he said that fund houses should manage their debt portfolios proactively. He had advised fund houses to develop expertise in analyzing credit risk on their own.
