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In order to protect the interest of investors in securities and promote the development of market, SEBI has increased the investment limit of mutual funds (MFs) in debt instruments issued by a single issuer to 12 per cent of the net asset value from 10 per cent.
However, fund houses have to seek the prior approval of the boards of Trustees and Directors of the Asset Management Company (AMC) before hitting the enhanced limit, said SEBI in a circular issued on Tuesday.
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Regulator approval will valid only for 6 monthsThe circular will come into immediate effect on all new schemes, while existing schemes can grandfather these guidelines till the maturity of the underlying debt and money market securities, it said.
The single-issuer instruments will include money market securities and non-money market securities re-rated investment grade or above by a credit rating agency.
Investment limits
To avoid inconsistency in investment by MFs in debt instruments of an issuer, SEBI has introduced a similar credit rating-based single-issuer limit for actively and passively managed schemes.
Other than credit risk funds, MF schemes cannot invest 10 per cent of its NAV in debt and money market securities rated AAA and 8 per cent of a scheme’s NAV in securities rated AA. Similarly, it can invest only 6 per cent of NAV in debt rated A and below.
The investment limits can be extended by 2 per cent of the scheme’s NAV with prior approval of the Board of Trustees and the AMC’s board, subject to compliance with the overall 12 per cent limit, it added.
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The regulator will assess the current rules in the light of past judicial pronouncements and various informal guidelinesThe long-term rating of issuers will be considered for the money market instruments. However, if there is no long-term rating available for the same issuer, then based on credit rating mapping of rating agencies, the most conservative long-term rating can be taken for a given short-term rating.
Exposure to government money market instruments such as TREPS on G-Sec and T-bills will be treated as exposure to government securities, SEBI said.
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