December 5, 2017

Sebi has asked mutual funds to submit their proposals for rationalisation of schemes, after getting approval from trustees, by December 15 as it modified the framework aimed at reducing the number by weeding out multiple products with similar themes.

The regulator in October had asked the mutual funds to categorise all their schemes in five baskets -- equity, debt, hybrid, solution oriented and other schemes. The fund houses need to ensure the schemes devised should not result in duplication of other plans offered by them.

Only one scheme per category is permitted except index funds , exchange traded funds tracking different indices, fund of funds with different underlying schemes and sectoral or thematic funds investing in different themes.

" Mutual funds are required to submit their proposals to Sebi after obtaining due approvals from their trustees as early as possible, but not later than December 15, 2017," the Securities and Exchange Board of India (Sebi) said in a circular issued on Monday.

As for medium as well as medium to long duration funds , Sebi said the fund manager may reduce the portfolio duration of such schemes up to one year in case the manager has a view on "interest rate movements in light of anticipated adverse situation."

The asset management company (AMC) also needs to mention asset allocation under such adverse situation in its offer documents.

Also, whenever the portfolio duration is reduced below the specified floors of three years and four years in respect of medium and medium-to-long duration funds , respectively, the AMC will be required to record the reasons for the same with adequate justification and maintain the same for inspection, Sebi said.

The written justifications need to be placed before the trustees in the subsequent meeting. Further, the trustees would also need to review the portfolio and communicate the same in their half-yearly trustee report to Sebi.

Further, Sebi said corporate bond funds would be permitted to invest in AA+ and above rated instruments and the minimum investment in such securities should be 80 per cent of the total assets.

Besides, the credit risk fund would be permitted to invest in AA and below rated instruments (excluding AA+ rated instruments) and minimum investment in corporate bonds should be 65 per cent of the total assets.

Specifying characterisation of banking and PSU fund , the regulator said the minimum investment in debt instruments of banks, PSUs, public financial institutions and municipal bonds would be 80 per cent of total assets.

For the floater fund , Sebi said "minimum investment in floating rate instruments including fixed rate instruments converted to floating rate exposures using swaps/derivatives should be 65 per cent of total assets."

Sebi said average full market capitalisation of the previous six months of the stocks would be considered while preparing the single consolidated list of stocks.

[The Economic Times]