Mumbai: New investment norms for mutual funds and additional guidelines for credit rating agencies and debenture trustees are on cards.
The move, indicated by U.K. Sinha, chairman of the Securities and Exchange Board of India (Sebi) on Tuesday, aims to prevent crises such as the recent one in two fixed income schemes under JP Morgan AMC Ltd.
“We may revise the investment norms for mutual funds to ensure that there is no excessive concentration risk taken by any mutual fund in a single company or a single sector at any given time," Sinha said on the sidelines of the annual capital market summit organized by industry body Federation of Indian Chambers of Commerce and Industry (Ficci).
At present, a mutual fund scheme can invest up to 15% in debt papers issued by a single company.
Sinha raised concerns about the way the mutual fund industry has been working, even though its assets under management (AUM) and the number of investor accounts has grown over the years.
Referring to the JP Morgan crisis which followed a rating downgrade in their underlying bonds and a consequent erosion in the net asset values (NAVs) of the schemes, Sinha said the MF industry was possibly not very careful while managing debt schemes and there are certain areas in the credit rating norms that need to be addressed.
“One day, the credit rating agency maintains a high investment grade for a given paper, and suddenly the rating is downgraded. We are working on ways to ensure that credit rating agencies are doing fair and timely disclosures on their rating rationale to protect the investors. We also want to ensure that there is no conflict of interest while assigning ratings. Similar things are being examined for debenture trustees. We have held meetings with credit rating agencies and debenture trustees and some additional guidelines for these entities will be announced by Sebi in the next couple of months," Sinha said.
The Sebi chairman said the regulator has formed a committee under Nandan Nilekani to enhance and optimize distribution of MF products in the country.
“We are examining how to spread the MF products across the length and breadth of the country. If we look at the flow of household savings into MF products, it is not a happy situation. In the next three months, we will come out with some guidelines to increase the distribution," Sinha added.
In order to improve the standard of corporate governance in the listed space, Sebi chairman Sinha said the regulator will soon increase the number of companies compulsorily requiring business responsibility reporting from top 100 to top 500 or so in terms of market capitalization.
Sinha said Sebi is also looking at ways to introduce new products and participants in the market following the merger of FMC with Sebi.
Additionally, Sebi is talking to the country’s tax authorities in an attempt to bring in favourable tax measures for REITs and InvITs, Sinha said.
Following Sebi’s move in August to introduce listing norms for startups in a bid to encourage the country’s entrepreneurial activities, Sinha on Tuesday urged stock exchanges to engage in dialogue with potential companies that could get listed on the newly introduced platforms on the exchanges dedicated for startups.