Sebi caps exposure to single-issuer debt securities for active mutual funds

Credit risk-based single issuer limits have now been extended beyond passive debt funds to cover actively-managed MF schemes too

Livemint
Published29 Nov 2022, 05:57 PM IST
The purpose of these limits is to cap any issuer-related concentration risk for investors in any scheme. (iStockphoto)
The purpose of these limits is to cap any issuer-related concentration risk for investors in any scheme. (iStockphoto)

Actively-managed mutual fund (MF) schemes will now have to follow the securities market regulator, Securities and Exchange Board of India’s (Sebi) credit risk-based single issuer limits for investment in money market and debt instruments.

Sebi had introduced such limits for debt ETFs and index funds via its May 23, 2022 circular on ‘Development of Passive Funds’. Following the circular dated November 29, this has now been extended to cover actively-managed MF schemes too. The purpose of these limits is to cap any issuer-related concentration risk for investors in any scheme.

An MF scheme (excluding credit risk schemes) must abide by the following three limits. That is, it must not invest more than 10% of its NAV in money market and debt instruments that are rated AAA, not more than 8% of its NAV in those rated AA, and not more than 6% of its NAV in those rated A and below. Credit risk funds by their very mandate must invest at least 65% of their corpus in below the highest-rated instruments (typically AAA and AA+ rated) and are therefore, not bound by these limits.

Furthermore, currently, at an overall level, an MF scheme cannot invest more than 10% of its NAV in investment grade or above rated instruments. Following the latest circular, this 10% limit can be raised to 12% of the scheme NAV with prior approval of the Board of Trustees and Board of Directors of the mutual fund house. Also, the three individual limits of 10%, 8% and 6% respectively on AAA, AA, and A and below rated instruments too may be extended by up to 2% with prior approval of the requisite fund house authorities subject to not breaching the overall 12% limit.

The new regulations will apply to all newly launched schemes with immediate effect. Existing schemes will be grandfathered from the regulations until the underlying debt and money market instruments held by these schemes mature.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
First Published:29 Nov 2022, 05:57 PM IST
HomeMoneyPersonal FinanceSebi caps exposure to single-issuer debt securities for active mutual funds

Most Active Stocks

Tata Steel

157.75
03:43 PM | 19 JUL 2024
-8.6 (-5.17%)

Tata Power

414.15
03:59 PM | 19 JUL 2024
-15.85 (-3.69%)

Bharat Electronics

306.30
03:45 PM | 19 JUL 2024
-7.2 (-2.3%)

Zee Entertainment Enterprises

137.55
03:57 PM | 19 JUL 2024
-4.9 (-3.44%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Tata Teleservices Maharashtra

102.11
03:59 PM | 19 JUL 2024
4.68 (4.8%)

Rail Vikas Nigam

614.00
03:59 PM | 19 JUL 2024
27.65 (4.72%)

Jubilant Pharmova

752.25
03:43 PM | 19 JUL 2024
25.3 (3.48%)

One 97 Communications

458.70
03:55 PM | 19 JUL 2024
13.65 (3.07%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    76,272.001,173.00
    Chennai
    76,124.001,465.00
    Delhi
    75,533.001,021.00
    Kolkata
    75,089.00-450.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.76/L0.00
    Kolkata
    104.95/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsCibilPremiumBudget