SEBI Restricts Mutual Funds from Investing in Unlisted Securities
SEBI
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Market regulator, Securities and Exchange Board of India (SEBI), has released a circular with various norms for debt mutual fund investments. SEBI has reportedly issued new regulations limiting the exposure for investment in credit-enhanced, unrated and unlisted securities.

One of the key reforms that stand out in the circular is that mutual funds will be restricted from investing in unlisted securities such as the unlisted commercial paper (CP). CPs are company-issued short-term debt securities with a maturity period of up to one year.

As per the circular, the regulations shall be effective from 01 January 2020 or a month after the groundwork for listing the CPs has been completed, whichever is later. In the same line, existing investments in unlisted debt securities will be allowed to continue until maturity.

Also Read: The Transition of Investors from Real Estate to Mutual Funds

In the recent debt crisis, one of the major issues faced by lenders and borrowers was the overexposure to commercial papers. With the new norms in place, the market regulator expects several issues concerned with the unlisted CPs to be resolved.

SEBI has limited the net assets’ exposure to unrated debt securities from 25% to 5%. As per the circular, mutual funds invested in credit enhanced securities shall not exceed 10% of net assets of a particular scheme. On the same lines, exposure to a specific group of credit enhanced securities is also restricted to 5% of the investment portfolio.

For any clarifications/feedback on the topic, please contact the writer at  viswanathan.v@cleartax.in.

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