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Thirty six schemes of 13 mutual funds have breached the SEBI cap of 10 per cent per scheme in debt securities (primarily additional tier-I and AT-II bonds) with special features.
Banking and public sector undertaking fund category has the highest number of seven schemes exceeding the 10 per cent cap in such securities. It is followed by the credit risk fund (five), medium duration (four), medium to long duration funds (four) and dynamic bond fund (three) categories also have excess investment in AT1 bonds, according to a Crisil Research report.
Last week, SEBI had capped investments by a mutual fund house under all its schemes in bonds with special features at 10 per cent from one issuer. It also specified that no MF scheme can hold more than 10 per cent of its net asset value of its debt portfolio in such bonds and not more than 5 per cent of the NAV of the debt portfolio should be due to such bonds from one issuer.
The market regulator comes into effect from April 1.
Write-off impact
SEBI latest directive comes after write-off of such bonds by two banks in last two years hit investors badly.
Piyush Gupta, Director, Crisil Funds Research, said in the medium to long term, the restrictions could reduce MF appetite for these securities, thus limiting the risk for investors.
Investors may not have the ability to understand mutual fund portfolios and gauge risk, especially in such type of bonds and they were caught unaware by the recent write-offs, he added
SEBI has also directed MFs to value perpetual bonds based on a 100-year maturity – a change from the current methodology where the call option date of the bond was considered for calculation. This could cause volatility in pricing, especially of securities trading at a discount. It could also impact the portfolio maturity/duration considering the change of maturity date of securities to 100 years, and cause volatility in the categorisation of schemes within the specific maturity dates.
The Department of Financial Services had written to SEBI to withdraw the guidelines related to the change in valuation norms as it would stifle banks ability to raise long term fund through bonds.
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