Tightening of investment norms for liquid MFs to protect investors from credit risks.
New Delhi, June 28: Following markets regulator’s – Securities and Exchange Board of India (SEBI) – tightening of investment norms for liquid mutual funds to protect investors from credit risks emerging from default by borrowers, the industry stakeholders hailed the decision saying it is in “right direction”.
“I strongly feel SEBI measures are in right direction to protect investor interest and get confidence back in liquid and as a category of debt mutual funds. I feel current NBFC crisis is making investor nervous about debt mutual funds overall and it is very important to take some hard decision to win back investor confidence and make this industry more investor friendly,” said Tarun Birani,Founder and CEO of TBNG Capital Advisors.
Based on the recommendations made by the mutual fund advisory committee formed by the SEBI to limit liquid fund exposure to a single sector, the SEBI’s board on Thursday decided that liquid schemes shall be mandated to hold at least 20 per cent in liquid assets such as Cash, Government Securities, T-bills and Repo on Government Securities.
It further said: “The cap on sectoral limit of 25 per cent shall be reduced to 20 per cent.”
It also said there should be adequate security cover of at least 4 times for investment by Mutual Fund schemes in debt securities having credit enhancements backed by equities directly or indirectly.
“The total assets under management (AUM) of debt funds is Rs 13.24 trillion, about 51 per cent of the total mutual fund industry AUM of Rs 25.93 trillion and liquid funds forms significant part of debt funds. Liquid fund as a vehicle is more for short term needs and contingency oriented planning so safety security and liquidity are primary requirement and 20 per cent requirement in liquid asset and 20 per cent limit in sector is a step in right direction,” said Birani.
Harshil Mathur, CEO and Co-Founder of Razorpay said: "Overall, we welcome the move by SEBI to approve the framework on Differential Voting Rights (DVR) for start-ups. However, we believe the restrictions will need to be re-looked at over time in order to make the best use of this development. This is something we have always been advocating especially for tech companies and now we look forward to take a lead on."