This provision will come into effect from April 1, 2020. Data from the Association of Mutual Funds in India (Amfi) show that liquid funds' average assets under management (AAUM) as on August was Rs 5.49 lakh crore.
The Securities and Exchange Board of India (Sebi) on Friday came out with a circular on risk management framework for liquid and overnight funds and norms governing investment in short-term deposits. Sebi said a liquid fund shall hold at least 20% of its net assets in liquid assets. Also, liquid funds and overnight funds shall not park funds in short-term deposits of scheduled commercial banks, which are pending deployment.
The Sebi circular said, “Liquid assets shall include cash, government securities, T-bills and repo on government securities. In case, the exposure in such liquid assets falls below 20% of net assets of the scheme, the asset management company (AMC) shall ensure compliance with the above requirement before making any further investments.” This provision will come into effect from April 1, 2020.
Data from the Association of Mutual Funds in India (Amfi) show that liquid funds’ average assets under management (AAUM) as on August was Rs 5.49 lakh crore. The AAUM for overnight funds stood at Rs 20,717.54 crore. Sebi said liquid funds and overnight funds shall not invest in debt securities having structured obligations (SO rating) and credit enhancements (CE rating). However, debt securities with government guarantee shall be excluded from such restriction.
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Announcements such as deployment in short-term deposits of scheduled commercial banks and liquid funds not investing in SO rating shall be effective for all fresh investments with immediate effect and existing investments in this regard shall be grandfathered.
Several of the above decisions were announced by the regulator in its board meeting in June. Sebi also said in its latest circular that mutual funds will levy exit load on investors who exit the liquid fund within seven days of their investment. “The same shall be effective for all fresh investments from 30th day from the date of this circular. It is further clarified that the aforesaid requirement to levy exit load shall not be applicable to any investments made in liquid funds prior to 30th day from the date of this circular,” said Sebi.
To ensure uniformity across the industry, Amfi is advised to prescribe the minimum exit load in a liquid fund on a graded basis as specified above in consultation with Sebi.
Even the cut-off timings for applicability of net asset value (NAV) in respect of purchase of units in liquid and overnight funds has been changed to 1:30 pm instead of 2:00 pm. “AMC shall not be permitted to charge investment management and advisory fees for parking of funds in short-term deposits of scheduled commercial banks,” said Sebi in the circular.