Sebi brings in credit risk-based limits for MFs in debt investments


The Securities and Exchange Board of India (Sebi) has introduced credit rating-based single-issuer limits for actively managed mutual fund schemes. The move is aimed at avoiding inconsistency in investment by mutual funds in debt instruments of an issuer, irrespective of the nature of a scheme’s management, the regulator said.

Currently, credit risk-based single-issuer limits are allowed for debt exchange-traded funds to enable them to effectively manage the risk associated with such investments.

The regulator on Tuesday said a mutual fund scheme should not invest more than 10% of its net asset value (NAV) in debt and money market securities rated ‘AAA’ issued by a single issuer. While for companies rated ‘AA’, the exposure should not be more than 8% and the limit has been capped at 6% for ‘A’ and below-rated companies.

Fund houses may extend the investment limits by up to 2% of the NAV of the scheme with prior approval of the board of trustees and directors, Sebi said.
The long-term rating of issuers should be considered for the money market instruments. However, if there is no long-term rating available for the same issuer, then based on the mapping of credit assessors between short-term and long-term ratings, the most conservative long-term rating should be taken for a given short-term assessment of creditworthiness, the regulator said.

Exposure to government money market instruments such as G-Sec and T-bills should be treated as exposure to government securities, Sebi said. The new rule would be applicable for all the new schemes introduced now. Existing schemes should be grandfathered from these guidelines until the maturity of the underlying debt and money market securities, the regulator said.

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