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  1. Win-win for investors? Sebi ups debt MFs’ exposure cap in housing finance companies

Win-win for investors? Sebi ups debt MFs’ exposure cap in housing finance companies

However, sectoral exposure in debt-oriented mutual fund scheme continues to remain at 25% at sector level in the financial services sector

By: | Mumbai | Updated: August 11, 2016 7:31 AM
Senior officials in the mutual fund industry say that, currently spreads of HFCs papers are higher by 50-60 basis points compared to other debt papers. Senior officials in the mutual fund industry say that, currently spreads of HFCs papers are higher by 50-60 basis points compared to other debt papers.

The Securities and Exchange Board of India (Sebi) on Wednesday increased the additional exposure limits provided for housing finance companies (HFCs) in financial services sector from 5% to 10%. However, sectoral exposure in debt-oriented mutual fund scheme continues to remain at 25% at sector level in the financial services sector.

Sebi in its circular also added that, “In light of the role of HFCs, especially in the affordable housing space, it has now been decided to increase additional exposure limits provided for HFCs in financial services sector from 5% to 10%.” Sebi also stated that, mutual funds needs to ensure that the additional exposure to such securities issued by HFCs are rated AA and above and these HFCs are registered with National Housing Bank (NHB) and the total investment/ exposure in HFCs shall not exceed 25% of the net assets of the scheme.

Dwijendra Srivastava, CIO-Debt at Sundaram Mutual Fund said, “It’s a good move by the regulator and win-win situation for investors and HFCs. For HFCs its one of the cheapest source of funds from the mutual funds. Spreads provided by HFCs are on higher side compared to certificate of deposits (CDs) and commercial papers (CPs) issued by corporate.”

Senior officials in the mutual fund industry say that, currently spreads of HFCs papers are higher by 50-60 basis points compared to other debt papers. “The spreads have come down in the past few months as there is no liquidity crunch. But few months ago spreads were as high as 100-150 basis points,” said another fund manager.

Sebi also stated that, mutual funds shall ensure that total exposure of debt schemes of mutual funds in a particular sector (excluding investments in Bank CDs, CBLO, G-Secs, TBills, short term deposits of Scheduled Commercial Banks and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 25% of the net assets of the scheme. In January, Sebi had reduced exposure limit in HFCs from 10% to 5%.

Sebi in its circular stated that, presently, an asset management (AMC) is required to obtain Auditor’s certification on the voting reports being disclosed by them on a quarterly basis. It has now been decided that such certification shall be obtained from “scrutiniser” in terms of Rule 20 (3) (ix) of Companies (Management and Administration) Rules, 2014.

“Board of AMCs and Trustees of Mutual Funds shall be required to review and ensure that AMCs have voted on important decisions that may affect the interest of investors and the rationale recorded for vote decision is prudent and adequate. The confirmation to the same, along with any adverse comments made by the scrutiniser, shall have to be reported to SEBI in the half yearly trustee reports,” added Sebi.

AMC is now required to submit soft copy of scheme information documents (SIDs) along with printed/ final copy, two working days prior to the launch of the scheme. It has now been decided that such submission is required to be made seven working days prior to the launch of the scheme. This circular shall be applicable with immediate effect.

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