SEBI mulls steps to reduce MFs exposure in corp bonds

SEBI is considering urgent steps to safeguard investors’ interest against any over-exposure of mutual funds to riskier corporate bonds, while measures are also under way to allow sale of funds on e-commerce platforms to provide an easy and cost-effective channel.

The proposed move to allow the fund houses and their distributors to sell mutual fund schemes through e-commerce platforms is expected to benefit all stakeholders including the investors.

At the same time, SEBI is considering reducing the sector exposure limits for debt schemes to address concerns over the risks associated with their investments in distressed corporate bonds, which recently came to fore after Amtek Auto crisis. Currently, the exposure limit is 30 per cent.

SEBI’s board is likely to deliberate upon these proposals in its meeting scheduled for tomorrow, sources said.

The Securities and Exchange Board of India (Sebi) is also looking into additional guidelines for credit rating agencies with respect to rating procedures on such corporate bonds.

The issue of reducing the MF exposure limit for debt schemes caught SEBI’s attention after JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of Amtek Auto, while a few other fund houses have also faced similar problems with regard to corporate bonds of a few other distressed firms.

Earlier, JP Morgan Mutual Fund had restricted redemptions from two of its debt schemes — Short Term Income Fund and India Treasury Fund.

The move came in the wake of a decline in NAVs (net assets value) of the schemes due to fund house’s exposure to Amtek Auto’s debt papers. These schemes had a collective exposure of about Rs 200 crore in Amtek Auto.

Also, the regulator might reduce the limit invested by a scheme’s corpus in debt securities of a single company.

Regarding the sale of allowing mutual fund products on e-commerce platforms, SEBI’s board will consider the matter as the move is expected to deepen the market.

The markets regulator has already set up a committee under Infosys co-founder Nandan Nilekani to deliberate ways in which electronic means can be used better for sale of MFs.

The mutual fund industry has been growing considerably over the last few years and currently has assets under management of over Rs 13 lakh crore, but it has been felt that a huge growth opportunity remains untapped especially among the retail investors.

In late December, SEBI Chairman UK Sinha had said sale of mutual fund products on e-commerce platforms could become effective in a month.

The SEBI board will also be apprised of the progress on new regulatory frameworks being readied for commodity markets including for developing more efficient price discovery and risk management mechanisms. SEBI began regulating this market in September last year after the erstwhile Forward Markets Commission (FMC) was merged with it.

Further, the board may also discuss about norms to help entrepreneurs raise funds through ‘crowd funding’.

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