NEW DELHI: The Securities and Exchange Board of India (Sebi) is planning to come up with guidelines that makes it mandatory for all debt mutual funds to hold a certain percentage of liquid assets in their schemes, including government securities and treasury bills.
“Sebi is setting up an expert committee to frame a stress testing methodology encompassing liquidity, credit, and market risks for all open ended debt mutual funds, and to design a framework to determine the minimum asset allocation required in liquid assets taking into account the type of investors, outcome of stress testing, and minimum redemption during gating,” Ajay Tyagi, Chairman said on Tuesday.
He was addressing the mutual fund industry at the Association of Mutual Funds in India’s (Amfi’s) 25th annual general meeting. Tyagi added that the move is aimed at improving liquidity in all schemes and would help schemes to meet sudden redemption pressures. In June, a Reserve Bank of India paper had already suggested that debt mutual funds should be asked to invest a certain amount in assets such as government bonds and treasury bills as a buffer against sudden redemption requests.
He had a word of caution for the mutual fund houses giving moratorium to borrowers in recent months on the lines of bank, and they should not do so. “Debt mutual funds must remember at all times that there is a difference between investing and lending. Mutual funds are not banks and shouldn’t attempt to behave like one,” Tyagi warned.
He argued that unlike banks there are neither capital adequacy requirements for mutual funds nor do they have the ‘lender of last resort’ comfort as banks have from RBI. He added that, SEBI had taken feedback from Amfi and would soon come up with a solution to deal with issues that had cropped up after its circular on multicap funds.
Tyagi also said there is a need to make mutual funds popular beyond the top 50 cities in the country. Over the last five years, the industry’s penetration beyond top 30 cities had remained stagnant at 15-17 per cent, added Sebi.