1 min read.Updated: 16 Feb 2021, 11:08 AM ISTNeil Borate
Liquid funds have been required to hold at least 20% of their assets in cash since April last year. However, since they do not have other mandates like compulsory holding of PSU bonds, they have not been affected
According to a senior debt fund manager who declined to be named, it was unclear how the 10% will be calculated for those with specific mandates such as banking and PSU debt funds, credit risk funds, and corporate bond funds.
“For example banking and PSU debt funds have to invest at least 80% of their corpus in paper issued by banks or public sector undertakings. It is not clear if the 80% is to be counted after deducting the 10% cash holding (bringing net exposure to such banking and PSU paper at 72%) or whether it is to be calculated separately (with 80% in banking and PSU debt and another 10% in cash)," said the fund manager cited above.
"Different fund houses are interpreting the rule differently allowing some to depart more from regulatory mandates than others who are taking a strict interpretation," he added.
The regulator has not responded to representations from a large fund house on the matter and from the Association of Mutual Funds in India (Amfi). The norm is meant to be a temporary arrangement until a committee formed by Sebi evolves permanent norms on minimum cash holding in debt funds. According to the fund manager, the issue of debt funds with specific mandates has been referred to the committee in question.
A debt fund manager at a mid-sized mutual fund house concurred. “There is lack of clarity on this issue. To be on the safe side, we are counting the cash requirement separately from the debt mandate. For example, in a corporate bond fund where 80% of assets have to be in paper rated AA+ and above, we are taking 80% in such paper and another 10% in cash."
Cash includes government securities, treasury bills and repos on government securities.
Liquid funds have been required to hold at least 20% of their assets in cash since April last year. However, since they do not have other mandates like compulsory holding of PSU bonds, they have not been affected.