SEBI asks fund houses to avoid investing in debt funds
Sebi has advised AMFI to issue detailed guidelines with respect to valuation of bonds issued under Basel-III
Mumbai: The market regulator Sebi has asked the fund houses to avoid investing in debt funds so as to avoid volatility in these funds. Keeping it in view, a set of guidelines has been issued by AMFI, the industry body, on the issue of Valuation of AT-1 Bonds and Tier-2 Bonds.
In its letter addressed to the fund houses on March 10, Sebi has inter alia stated that the maturity of all perpetual bonds shall be treated as 100 years from the date of issuance of the bond for the purpose of valuation. Based on the representation of the Mutual Fund Industry, Sebi has decided that the deemed residual maturity for the purpose of valuation of existing as well as new bonds issued under Basel-III framework for implementation of the aforesaid circular shall be as per a glide path specified in another Sebi circular dated March 22.
Further, Sebi has advised AMFI to issue detailed guidelines with respect to valuation of bonds issued under Basel-III. AMFI has urged all the 44 fund houses to take note of the guidelines for uniform implementation from April 1.
"What happens that fund houses normally invest in debt funds. As the maturity of the currently existing funds is normally 10-30 years, they have become volatile now. Hence, to avoid it, the AMFI has issued a guideline on the instruction of SEBI so as to avoid ongoing volatility in the bond market", DP Singh, Chief Business Officer, SBI Mutual Fund told Bizz Buzz.
The current size of the industry with 44 players stands at Rs 36 lakh crore. Total investment in these instruments by MF industry is around 35K crore, which is around 2 per cent of total debt AUM, he said. As of now, eligible schemes are allowed to invest up to 10 per cent of the portfolio in these securities. "This amendment will bring in confidence and security to the investor community," says Nilesh Karani, vice president, Research, magnum. As per AMFI guidelines, AMCs shall adopt maturity of 100 years for perpetual bond issued by banks. There will be a glide path for smooth implementation.