SEBI Approves Tighter Norms For Mutual Funds

The chairman said that the regulator does not recognise any standstill agreement between promoters and mutual funds. “Mutual funds are not banks, so there’s nothing called standstill. There are investing, not lending.” Tyagi said that restrictions have been introduced in consultation with the industry to bring in more discipling and protect investors’ money.

Tyagi said the regulator has taken a cautious approach with differential voting rights in shares. This is the first time this is being tried in India, he said. There’s also a counter argument that corporate governance needs to be tightened, Tyagi noted, adding that SEBI has tried to address those concerns.

Tighter Norms For Mutual Funds

SEBI had constituted a working group to review its risk management framework for mutual fund schemes, in light of credit events in fixed income market that led to a increase in liquidity risk of mutual funds.

SEBI had constituted a working group to review its risk management framework for mutual fund schemes, in light of credit events in fixed income market that led to a increase in liquidity risk of mutual funds.

The regulator has approved the following proposals:

Liquid schemes will be mandated to hold at least 20 percent in liquid assets like cash, government securities and treasury bills.

The cap on sectoral limit has been reduced to 20 percent from 25 percent earlier.

The valuation of debt and money market instruments based on amortisation will be dispensed with completely and now be on mark-to-market Value.

Liquid and overnight schemes will not be permitted in short term deposits, debt or money market instruments having structured obligations.
Mutual fund schemes will be mandated to invest only in listed non-convertible debentures.

All fresh investments in commercial papers will be made only in listed ones.

All fresh investments in equity by mutual fund schemes will be only made in listed or to be listed shares.

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