Risk management framework for liquid and overnight funds and norms governing investment in short term deposits
Summary
This circular mandates a risk management framework for liquid and overnight funds, including minimum liquidity holdings and investment restrictions. It prohibits Asset Management Companies from charging fees for parking funds in short-term deposits of scheduled commercial banks. The document specifies effective dates for various provisions and cites the legal powers under which SEBI issues these regulations.
Text
Liquid funds shall hold at least 20% of its net assets in liquid assets... In case, the exposure in such liquid assets falls below 20% of net assets of the scheme, the AMC shall ensure compliance with the above requirement before making any further investments.
Liquid Funds and Overnight Funds shall not park funds pending deployment in short term deposits of scheduled commercial banks.
Liquid Funds and Overnight Funds shall not invest in debt securities having structured obligations (SO rating) and/ or credit enhancements (CE rating). However, debt securities with government guarantee shall be excluded from such restriction.
Mutual Fund shall levy exit load on investors who exit the Liquid Fund within 7 days of their investment... AMFI is advised to prescribe the minimum exit load in a liquid fund on a graded basis...
The cut-off timings for applicability of Net Asset Value (NAV) in respect of purchase of units in liquid and overnight funds shall be 1:30 p.m. instead of 2:00 p.m.
Asset Management Company (AMC) shall not be permitted to charge investment management and advisory fees for parking of funds in short term deposits of scheduled commercial banks.
The provision at paragraph A-1 shall be effective from April 1, 2020.
The provision at paragraph A-2 and A-3 shall be effective for all fresh investments with immediate effect. Existing investments in this regard shall be grandfathered.
The provisions at paragraph A-5 and B-1 shall be effective from 30th day from the date of this circular.
This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996...
Source: SecMarx — Risk management framework for liquid and overnight funds and norms governing investment in short term deposits. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.