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Suresh Parthasarathy

Chennai, April 23 The Securities and Exchange Board of India move to allow mutual funds to sell government securities contracted for purchase in delivery-versus-payment (DVP) mode, may provide better liquidity in the debt markets.

Under the new regulations, funds will find it possible to sell government securities, which they have contracted for purchase, but do not yet hold, provided the transaction is guaranteed by the Clearing Corporation of India. Currently, mutual funds cannot sell debt securities contracted for purchase, as they can only sell debt that they physically hold.

Birla Sun Life AMC’s Chief Investment Officer, Mr A. Balasubramanian, said that this regulation may help in the deepening of trading activity and increase liquidity in debt market. The debt assets managed by mutual funds have been growing consistently, with roughly 70 per cent of the mutual fund assets under management now dominated by money markets and debt funds, he said. The recent volatility in equity markets and rising yields on government bonds may also make debt funds attractive in the coming year. Seen in this backdrop, SEBI’s move would help fund managers in taking active calls on managing the selection of debt securities, and the duration of portfolios for debt funds. Asked whether this facility will enhance the return on debt funds, he said that it would be difficult to quantify the increase in returns. However, this will result in a deepening of debt market, which ultimately should help in building a more vibrant market for debt.

This will also result in better price discovery for debt securities. This hopefully may help portfolio managers generate ‘alpha’ on the portfolio, he said.

More Stories on : Mutual Funds | Debt Market | Regulatory Bodies & Rulings

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