Stock market regulator Securities & Exchange Board of India (Sebi) is finalising the blueprint to usher in reforms for the mutual fund industry and its priority is to set in order the debt mutual funds. The Sebi mutual fund panel met in Mumbai on Friday for long-drawn discussions on the matters relating to the industry.

?We discussed a lot of things and a variety of topics were addressed,? confirmed AP Kurian, chairman of the Association of Mutual Funds in India (Amfi). Clearly, the focus of the discussions was on bringing in more transparency to the debt mutual funds segment. Valuation being the prime concern as the valuation for debt securities that were not traded remains ambiguous although players use the Crisil Bond Valuation Matrix (Crisil BVM). To date, nearly Rs. 80,000 crore ($18 billion) of fund portfolio holdings are marked-to-market everyday, based on the Crisil BVM.

However, the industry wanted other players also to get involved in this mechanism so as to facilitate daily net asset value declaration for money market funds, as against the practice of historical declarations. This is something that Sebi too is insistent on getting done, says a source close to the developments.

Sources also say Sebi is seriously considering a move to increase the networth requirement of asset management companies from the current Rs 10 crore level to Rs 50 crore to ensure that serious players enter the fray. However, this move may not impact the plans of several players lined up to start asset management firms as the amount is not anissue, says senior fund manager.

The regulator also discussed the manner in which the corporate debt market could be enhanced, especially the trading of such securities. Last week, Sebi had expressed its intention of creating a robust exchange traded market for corporate debt. On Tuesday, Crisil had come up with a study mentioning that many debt funds, especially smaller ones, had concentration risks.

The report says, ?A majority of schemes have single-industry concentration, and many small schemes have single-company concentration.?

The report further says, ?Funds with large and illiquid single-company exposures could be affected by redemption pressure: single-company exposures could increase as these funds sell the more liquid assets in their portfolios to meet redemptions.?

The discussions also included the ways in which transparency in the fixed maturity plans could be enhanced, especially with regards to declaring indicative yields. ?At the moment we have had long discussions and there has been no decision taken at the moment,? Kurian said. Experts reckon that the regulator will be looking at strengthening the debt market scenario first and then making sweeping reform for debt mutual funds. ?A lot of the woes for the debt mutual funds are due to the structural issues and these need to be addressed first,? said Roopa Kudva, MD& CEO of Crisil while speaking with FE earlier in the week.

Road map

• Valuation is a prime concern as valuation for debt securities that were not traded remains unclear

• Sebi is also planning to hike the networth requirement of asset management companies