Mutual funds investment cap to push up funding costs for NBFCs, housing finance cos: ICRA

Certain debt mutual fund schemes, such as long-term FMPs (Fixed Maturity Plans) have been a preferred route for the NBFC (Non-Banking Finance Company) sector to raise medium to long term funds at attractive rates from the bond markets, ICRA said in a research note.

However, the latest Sebi guidelines capping the investment limits of debt MFs to one particular sector at 30 per cent of net assets would impact the funding to NBFCs, which includes HFCs as well under the regulatory framework.

As per the Sebi circular, dated September 13, 2012, Mfs have been asked to ensure that total exposure of their debt schemes in a particular sector shall not exceed 30 per cent of the net assets of the scheme.

This investment cap, however, would not apply to investments in Bank Certificate of Deposits, Collateralised Borrowing and Lending Obligation, Government Securities, Treasury Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks.

Sebi has asked all the existing schemes to comply with these investment caps within a period of one year.

Evaluating the impact of the new regulations, ICRA said that Indian mutual fund industry has been largely investing in Government Securities and Financial sector entities (including banks) from their debt and money market schemes.

At an industry level, investments in G-Secs and financial sector account for over 66 per cent of total Assets

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