The Securities and Exchange Board of India (SEBI) has updated the liquidity norms for liquid funds. SEBI has made it mandatory for liquid funds to hold at least 20% of its nett assets in liquid form.
To comply with the SEBI norm, the liquid funds can hold liquid assets in cash, government securities, T-bills and repo on government securities.
In a case where the holding of the liquid assets falls below 20% of the nett assets of the liquid fund, the fund cannot make any further investments. For making any further investments, the fund house should first meet the 20% liquidity norm.
Also Read: SEBI: Debt Securities Will Soon Be Marked to Market
SEBI has also barred liquid funds and overnight funds from parking money in:
The prohibition mentioned above is against parking money available with the funds but is pending deployment. However, the funds can park such money in debt securities with a government guarantee.
SEBI has further mandated an exit load on investors who exit within seven days of investing in a liquid fund. SEBI has directed the industry body AMFI (Association of Mutual Funds in India) to specify a minimum exit load on a graded basis.
The above norms would apply with effect from 1 April 2020.
For any clarifications/feedback on the topic, please contact the writer at sweta.dugar@cleartax.in
I am a Chartered Accountant by profession. I specialise in personal taxes and corporate income tax matters. I am an avid reader and track developments in financial markets, economy and other market developments.
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