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Our Bureau

Kolkata , Oct. 7

THE Securities and Exchange Board of India (SEBI) has modified the norms related to investment in debt securities by mutual funds in order to include instruments issued by public bodies and institutions, ones that are guaranteed by the Central or any State Government.

Investment limits prescribed by SEBI (Mutual Fund) Regulations, 1996 will now apply to debt issued by agencies like electricity boards, municipalities and State transport corporations, provided they carry Government guarantees.

Securities issued by the Government or by the Reserve Bank of India (RBI) on its behalf are at any rate exempt from such limits.

The latest SEBI move is in line with clauses 1 and 1A of Schedule VII of the 1996 regulations, which embody the prudential investment norms stipulating limits on investment in securities issued by a single issuer.

Mr A.P. Kurian, who heads the Association of Mutual Funds in India, said that the regulator's stance would help fine-tune a norm that already exists. "In effect, this widens the basket."

Schedule VII says, "A fund shall not invest more than 15 per cent of its net asset value in debt instruments issued by a single issuer which are rated not below investment grade by a credit rating agency."

Such investment limit may be extended to 20 per cent of the scheme's NAV with prior approval of the boards of the trustee and the asset management company.

However, such limit will not apply to Government securities and money market instruments.

Also, investment within the prescribed limit can be made in mortgaged backed securitised debt instruments that are rated not below investment grade.

As for unrated debt, a fund cannot invest more than 10 per cent of its NAV in instruments issued by a single issuer; the total investment in such unrated paper cannot exceed 25 per cent of the NAV.

Incidentally, no fund under all its schemes should own more than 10 per cent of a company's paid-up capital carrying voting rights.

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