Home Investment Products Mutual Fund SEBI tightens debt investment rules for mutual funds – ThePrint

SEBI tightens debt investment rules for mutual funds – ThePrint

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SEBI tightens debt investment rules for mutual funds – ThePrint
File picture of SEBI Bhavan in Mumbai, Maharashtra | Photographer: Santosh Verma | Bloomberg

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India’s markets regulator unveiled new guidelines late Wednesday that can restrict investments by mutual funds in some debt devices, after traders suffered losses from writedowns on riskier bonds final 12 months.

The laws, which take impact April 1, relate to debt reminiscent of some securities bought by banks which have options that enable losses to be imposed on collectors earlier than fairness holders, based on a round from the Securities & Change Board of India. Bonds bought by banks to spice up their capital buffers, generally known as Extra Tier 1 or Tier 2 notes, could have subordination options that might additionally come underneath the foundations, based on SEBI.

The India’s capital markets regulator in October barred particular person traders from shopping for Extra Tier 1 financial institution bonds, citing the necessity to defend non-professional consumers. International regulators had launched such securities after the monetary disaster to assist keep away from taxpayer bailouts.

A 12 months in the past, the Reserve Financial institution of India took the unprecedented step of completely writing down 87.8 billion rupees ($1.2 billion) of Extra Tier 1 bonds issued by Sure Financial institution Ltd. when it seized the lender to guard depositors. Native regulators have additionally been in search of to spice up protections for particular person traders after Franklin Templeton abruptly shuttered six debt funds final April amid a liquidity squeeze.

The brand new SEBI limits on mutual-fund investments additionally apply to bonds that may be transformed into fairness upon a pre-specified set off occasion. The restrictions are:

  • A mutual fund can personal, underneath all its portfolios, at most 10% of such debt bought by a single issuer
  • A debt portfolio can make investments at most 10% of its internet belongings in such debt by all issuers and at most 5% of internet belongings in such debt bought by a single issuer –Bloomberg 

Additionally learn: Have a look at petrol, diesel costs – not frothy inventory markets – for well being of Indian economic system


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