Although debt funds are considered safer than equity mutual funds as they don\u2019t get affected by daily fluctuations in the equity markets, but last year some debt funds, having a large exposure to the NBFC sector, gave negative returns after the IL&FS crisis dragged the sector down. This triggered a panic among the investors, resulting in further redemption pressure on the funds forcing the Asset Management Companies (AMCs) sell the devalued bonds without giving time to recover and resulting in further devaluation. Such a debacle in a trusted segment of financial instruments, where people even park their contingency funds, has put market regulator Securities and Exchange Board of India (SEBI) into a fire-fighting mode. After the IL&FS crisis hit the returns of debt funds, a blame game had started. Some had blamed fund managers of AMCs and even demanded that the losses of investors should be compensated from the profits earned by respective AMCs. But the fact is that the fund managers rely on rating agencies, as they pick the bonds having good credit ratings. What is really surprising that rating agencies like ICRA, a unit of Moody\u2019s and Fitch-owned India Ratings & Research and CARE didn\u2019t raise red flag despite the IL&FS group\u2019s debt burden jumped 44 per cent as early as in 2015. Taking a note on deficiency in services by rating agencies, the SEBI Board, in its meeting on March 1, 2019, has made some proposals to bring uniformity and consistency across the mutual fund industry on valuation of money market and debt securities rated below investment grade. According to the proposals, the valuation agencies appointed by the Association of Mutual Funds in India (AMFI) may provide valuation of money market and debt securities rated below investment grade. The market regulator, in its proposal, also said, \u201cAs Asset Management Companies are responsible for fair valuation, they may deviate from the valuation provided by the valuation agencies subject to recording of detailed rationale for such deviations, appropriate reporting to the Board of AMC and Trustees and appropriate disclosures to investors.\u201d Apart from over exposure to a particular segment, changes in RBI policy rates and subsequent impact on risk-free rates are also pose interest rate risk on debt funds having longer duration financial papers in their investment portfolio. While reduction in prevailing interest rates increases the value of funds having bonds with higher interest in the portfolio, a reverse situation may result into fall in value of such funds. To make the existing valuation practices more reflective of the realisable value of money market and debt securities with residual maturity up to 60 days, the SEBI Board has decided that the residual maturity limit for amortisation based valuation by mutual funds shall be reduced from existing 60 days to 30 days. The SEBI Board has also decided that the threshold maintained between reference price and valuation price shall be within the range of \u00b10.025 per cent. For this purpose, the reference price shall be taken as security level price given by the valuation agencies. Less dependency on rating agencies and own research before picking up financial instruments and reduction in duration as well as transparency in valuation of financial papers would reduce the associated risks and make the bond funds more secure.