Opinion | One-size-fits-all approach towards debt funds can limit long-term returns

Post the fallout of events in the debt space a year ago, the Securities and Exchange Board of India (Sebi) has taken several measures to streamline investment practices in debt funds. Sebi’s recent circular on the nature of instruments that debt funds can invest in has been made keeping investor protection in mind. But what is worrisome is whether some of these changes will lower returns from debt funds as a category in the long run. The broad strokes with which Sebi has chosen to implement some of these rules (specifically the cap on unlisted instruments and cap on structured obligations or SOs and credit enhancements or CEs) across all fund categories causes some concern.

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