Sebi tightens norms for Mutual Funds’ exposure to riskier bonds

By: | Published: January 12, 2016 11:48 AM

The fund houses would be given appropriate time to confirm that their schemes are in compliance with the new investment restrictions.

sebi-reuters LThe steps will mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades, put mutual funds in a better position to handle adverse credit events. (Reuters photo)

To safeguard investors’ interest, markets regulator Sebi today tightened its norms for mutual funds’ exposure to riskier corporate bonds including by capping the investment limit in bonds of a single company at 10 per cent.

The single sector exposure limit would also be lowered from 30 per cent to 25 per cent, while group-level investment limits of 20-25 per cent have been also been introduced for the mutual funds investing in debt securities.

The issue of reducing the MF exposure limit for debt schemes caught Sebi’s attention after JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of Amtek Auto, while a few other fund houses have also faced similar problems with regard to corporate bonds of a few other distressed firms.

At a meeting here today, Sebi’s board undertook a review of the prudential limits on investments by mutual funds and approved a wide range of changes which would be applicable to all fresh investments by any new or existing scheme.

The fund houses would be given appropriate time to confirm that their schemes are in compliance with the new investment restrictions.

The steps will mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades, put mutual funds in a better position to handle adverse credit events.

It would also provide mutual fund investors with enhanced diversification benefits, the Securities and Exchange Board of India (Sebi) said in a statement after the board meeting.

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