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Markets regulator SEBI on June 25 clarified rules pertaining to holding of liquid assets in open-ended debt mutual funds.
SEBI had, in November, 2020, issued rules that entailed keeping of minimum 10% in government securities in order to enhance the liquidity in open-ended debt funds like floater funds, credit risk funds and banking and PSU bond funds, among others.
This led to some confusion in fund managers’ minds as to what the balance allocation would be, Sandeep Bagla, CEO – TRUST MF, said.
For all regulatory limits, calculations other than asset allocation limits (for Macaulay duration, risk-o-meter, investment restrictions pertaining to issuer, sector and group), the base to be considered is 100 per cent of net assets, SEBI said in a circular.
For asset allocation limits applicable for banking and PSU bond fund, floater fund, credit risk fund and corporate bond funds, the base will be considered as net assets excluding the extent of minimum stipulated liquid assets of 10%, it added.
Explaining the framework, Bagla said in banking and PSU debt funds, the original minimum allocation to debt securities issued by such funds was earlier given as 80 per cent of the total assets under management (AUM).
So out of 100%, 80% was to be kept in securities issued by banking and PSU bond funds and 10% to be put in government securities, he said.
Now, SEBI has clarified that 80% will apply to the AUM excluding what has to be held in government securities, he added. So basically, 80% of 90%, that is 72% needs to be maintained in the banking and PSU funds. “This clarifies that in any fund, 105 has to be invested in government securities and 80% of the balance 90% has to be invested in the asset class which the fund was intended to put this money in,” Bagla said.
The new circular will be effective from December 1, the Securities and Exchange Board of India (SEBI) said.
The markets regulator had also appointed a committee to look into a liquidity and stress testing framework for debt mutual funds. Based on the committee’s recommendations, SEBI has asked industry body AMFI to prescribe a suitable framework for liquidity risk management for open-ended debt schemes (except overnight fund, gilt fund and gilt fund with 10-year constant duration) within a period of one month.