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Capital market regulator Securities and Exchange Board of India (Sebi) on Tuesday in a circular said that it has placed caps on the share of assets an actively managed fund can park in a single company's debt instruments. The limit, however  varies based on each issuer's credit rating.

"In order to avoid inconsistency in investment by mutual funds in debt instruments of an issuer, irrespective of the scheme being actively or passively managed, it has been decided to introduce a similar credit rating-based single-issuer limit for actively managed mutual fund schemes," Sebi said in a notification on Tuesday.

“The above investment limits may be extended by up to 2 percent of the NAV of the scheme with prior approval of the Board of Trustees and Board of Directors of the AMC (asset management companies), subject to compliance with the overall 12 percent limit specified in clause 1 of Seventh Schedule of MF Regulation," Sebi said.

According to the rules, a mutual fund scheme shall not invest more than 10 per cent of its net asset value in debt and money market securities of companies rated 'AAA'.

For companies rated 'AA', the exposure cannot be larger than 8 per cent. While, the limit is set at 6 per cent for 'A'-rated companies.

The limits can be extended by another 2% with prior approval of the board of trustees and the board of directors of the asset management company, it said.

The norms will be applicable for all new mutual fund schemes launched from Tuesday, while existing schemes will be exempt until the maturity of the underlying debt and money market securities.

Similar caps already exist for passive funds, such as exchange-traded funds, and are intended to reduce the risk from a fund's assets concentrated in securities of a single company. The new rule rationalises rules for both active and passive funds.

Sebi said the long term rating of issuers shall be considered for the money market instruments. However, if there is no long term rating available for the same issuer, then based on credit rating between short term and long term ratings, the most conservative long term rating shall be taken for a given short term rating.

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