Debt MFs: SEBI mulls minimal asset allocation in liquid belongings


New Delhi, September 22

With an goal to carry liquidity, markets regulator SEBI is mulling stress testing, minimal asset allocation in liquid belongings and swing pricing like mechanism for all open-ended debt-oriented mutual fund schemes, its chief Ajay Tyagi stated on Tuesday.

SEBI is facilitating the organising of an knowledgeable committee to border a stress-testing methodology, encompassing liquidity, credit score and market dangers, Tyagi stated whereas addressing business physique Association of Mutual Funds in India’s (AMFI) 25th annual normal assembly.

The committee may also design a framework to find out the minimal asset allocation required in liquid belongings, bearing in mind the character of scheme’s belongings, sort of buyers, end result of stress testing and minimal redemption requirement throughout gating, he added.

In the interim, bearing in mind the suggestions made by the mutual fund advisory committee, SEBI stated it might be stipulating a minimal holding of liquid belongings by all debt-oriented schemes.

While in a single day schemes are primarily invested in liquid belongings reminiscent of authorities securities (G-Secs), treasury payments (T-bills), repo in G-Sec and money, there’s a provision for liquid schemes to carry a minimal 20% in liquid belongings.

The different debt-oriented schemes at the moment don’t have any such requirement and might put money into varied classes of company bonds, business papers, whose secondary markets could not have sufficient liquidity.

As far as efficiency of the mutual fund business is worried, Tyagi stated total, the business has weathered the storm properly, which demonstrates the robustness of the regulatory framework in addition to the maturity of the business.

The business, nonetheless, additionally went by way of a number of patches of challenges, particularly on the debt mutual fund aspect.

“Some of the issues that arose during the period are now addressed and some are in the process of being addressed,” he famous.

In March-April 2020, vital threat aversion and subsequent illiquidity have been noticed within the bond market particularly in “AA” and beneath rated papers.

The transfer created vital challenges within the type of redemption pressures being confronted by debt mutual funds, on account of not solely regular year-end redemptions, however Covid-19 associated redemption pressures.

Panel to border tips

SEBI is facilitating the organising of an knowledgeable committee to border a stress-testing methodology, encompassing liquidity, credit score and market dangers

The committee may also design a framework to find out the minimal asset allocation required in liquid belongings

While in a single day schemes are primarily invested in liquid belongings reminiscent of authorities securities, treasury payments, repo in G-Sec and money, there’s a provision for liquid schemes to carry a minimal 20% in liquid belongings

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