Grandfathering of existing unlisted NCDs applicable across Mutual Fund industry: Sebi

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Published: April 28, 2020 8:19:54 PM

"It is ... clarified that the grandfathering of the identified NCDs is applicable across the mutual fund industry. Accordingly, mutual funds can transact in such identified NCDs and the criteria as specified in para B (1) of Sebi circular dated October 1, 2019 is not applicable," Sebi said.

NCD, Mutual Fund industry, sebi, debt portfoliom, latest news on sebiFrom March 31, 2020, Sebi had said that the maximum investment in unlisted NCDs will be 15 per cent of the debt portfolio of the scheme and the investment limit will be 10 per cent from June 2020.

Markets regulator Sebi on Tuesday clarified that the grandfathering of the existing unlisted non-convertible debentures (NCDs) is applicable across the mutual fund industry and said the mutual funds can transact in such NCDs.

However, investments in such NCDs will continue to be subject to compliance with investment due diligence and all other applicable investment restrictions, the regulator said in a circular.

“It is … clarified that the grandfathering of the identified NCDs is applicable across the mutual fund industry. Accordingly, mutual funds can transact in such identified NCDs and the criteria as specified in para B (1) of Sebi circular dated October 1, 2019 is not applicable,” Sebi said.

The provision refers to Sebi’s direction issued in October 2019 that a mutual fund scheme shall not invest in unlisted debt instruments including commercial papers, other than government securities, other money market instruments and derivative products such as interest rate swaps, interest rate futures among others, which are used by mutual funds for hedging.

However, the regulator had allowed mutual funds to invest in unlisted NCDs up to a maximum of 10 per cent of the debt portfolio of a scheme in a phased manner. From March 31, 2020, Sebi had said that the maximum investment in unlisted NCDs will be 15 per cent of the debt portfolio of the scheme and the investment limit will be 10 per cent from June 2020.

In its circular issued on Tuesday, Sebi said “based on the request received, the timeline for compliance with the maximum limits for investment in unlisted NCDs … as 15 per cent and 10 per cent of the debt portfolio of the scheme is extended to September 30, 2020 and December 31, 2020 respectively.”

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