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Business News/ Market / Stock-market-news/  Sebi relaxes debt fund exposure limit for housing finance companies
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Sebi relaxes debt fund exposure limit for housing finance companies

Sebi increased the additional exposure limits for debt mutual funds in housing finance companies from 5% to 10%

Photo: Aniruddha Chowdhury/MintPremium
Photo: Aniruddha Chowdhury/Mint

The Securities and Exchange Board of India (Sebi) on Wednesday partly relaxed its norms on exposure limits for debt-oriented mutual funds in housing finance companies (HFCs).

Existing norms require debt mutual fund schemes to cap their investments at 25% of the net assets of the scheme in a single sector and an additional exposure of up to 5% in the financial services sector involving HFCs. Sebi on Wednesday increased the additional exposure limits in HFCs from 5% to 10%.

In January, the capital markets regulator had tightened the investment norms for debt-oriented mutual funds and introduced caps on how much they can invest in debt issued by an individual company, a business group or to any specific sector.

Sebi had reduced the exposure limit for a mutual fund scheme across a single sector from 30% to 25% of the fund’s NAV then.

To curb the further credit risks mutual funds take in the housing and realty sector, Sebi in January had reduced the additional exposure limit in HFCs from 10% of net asset value (NAV) to 5% of NAV, stating that the revision in exposure limits will mitigate risks and offer investors diversification benefits.

Sebi has been reviewing norms for such investments since August 2015, when JPMorgan Asset Management Co. was forced to restrict redemptions in two of its schemes due to a downgrade of bonds issued by Amtek Auto Ltd.

Following a review, Sebi, in January had reduced the single issuer limit (limit of investment in securities sold by a single company) from 15% to 10% of the NAV of the scheme.

“Today, the total asset under debt-oriented mutual funds is around Rs9 trillion. So, the increase in exposure limit by 5% will create immediately an additional investment space worth Rs40,000-50,000 crore in the NBFCs/HFCs. Given the larger balance sheet sizes and faster growth rates in HFCs, their borrowing requirements are larger today and hence, these changes will benefit them the most. Also, the latest norm will help mutual funds to invest more in papers issued by good quality HFCs, that currently offer higher yields over similar rated issuers in the non-HFC/non-NBFC space," said Amit Tripathi, fixed income head at Reliance Nippon Life Asset Management Co. Ltd.

On 4 August, home loan provider Dewan Housing Finance Corp. Ltd (DHFL) received a whopping Rs19,000 crore worth of subscriptions for its public issue of bonds, that was intended to raise only up to Rs4,000 crore. It is the highest ever subscription received for a non-convertible debentures issue.

The yield offered by DHFL on the bonds for institutional investors ranged from 8.74% to 9.1%, while the yield for retail investors was between 8.33% and 9.3%. The rates were higher than most other AAA bonds traded in the market at present.

Gagan Banga, vice-chairman and managing director, Indiabulls Housing Finance Ltd said, “The revision in limits will enable a reduction in incremental cost of funds by 25-30 basis points, which we will look to utilise to both grow faster and also to pass on the benefit to our customers. It is also very encouraging to see the financial system recognising the vital role performed by HFCs in fulfilling the vital affordable housing agenda of the government."

A basis point is one-hundredth of a percentage point.

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ABOUT THE AUTHOR
Anirudh Laskar
Anirudh reports on significant corporate matters including large mergers and acquisitions, India's emerging e-commerce sector and regulatory issues in the corporate and financial services industry. Over the past 17 years, he has covered many beats including banking, NBFCs, aviation, automobile, insurance, markets, SEBI, IRDAI, mutual funds, investment banking, private equity, deals, and conglomerates.
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Published: 10 Aug 2016, 08:59 PM IST
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