Norms regarding holding of liquid assets in open ended debt schemes & stress testing of open ended debt schemes
Summary
This circular mandates that open-ended debt schemes hold at least 10% of net assets in liquid assets, excluding specific fund types. It also requires all open-ended debt schemes to conduct stress testing and establish guidelines for such testing. These provisions are effective from February 1, 2021, and December 1, 2020, respectively.
Text
All open ended debt schemes (except Overnight Fund, Liquid Fund, Gilt Fund and Gilt Fund with 10 year constant duration) shall hold at least 10% of their net assets in liquid assets.
The liquid assets specified at para 1(a) above shall not be included for determining the scheme characteristics of the open ended debt schemes.
In case, the exposure in such liquid assets / securities falls below the threshold mandated at para 1(a) above, the Asset Management Companies (AMCs) shall ensure compliance with the above requirement before making any further investments.
It is decided to mandate all open ended debt schemes (except overnight scheme) to conduct stress testing. Further... AMC shall stipulate the guidelines to carry out stress testing for the aforementioned debt schemes.
The provisions at para 1 above shall be effective from February 01, 2021 and the provision at para 2 above shall be effective from December 01, 2020.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulation, 1996.
Source: SecMarx — Norms regarding holding of liquid assets in open ended debt schemes & stress testing of open ended debt schemes. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.