Introduction of credit risk based single issuer limit for investment by mutual fund schemes in debt and money market instruments
Summary
SEBI introduces credit risk-based single issuer limits for mutual fund investments in debt and money market instruments to ensure consistency between active and passive schemes. The circular mandates specific percentage caps based on credit ratings, allowing extensions with prior board approval while adhering to the overall 12% NAV limit. Existing schemes are grandfathered until the maturity of underlying securities, while new schemes must comply immediately upon issuance.
Text
A mutual fund scheme shall not invest more than 10% of its NAV in debt instruments issued by a single issuer, which may be extended to 12% with prior approval of the Board of Trustees and Board of Directors.
It has been decided to introduce a similar credit rating based single issuer limit for actively managed mutual fund schemes to avoid inconsistency with passively managed funds.
A mutual fund scheme shall not invest more than 10% of its NAV in debt and money market securities rated AAA issued by a single issuer.
A mutual fund scheme shall not invest more than 8% of its NAV in debt and money market securities rated AA issued by a single issuer.
A mutual fund scheme shall not invest more than 6% of its NAV in debt and money market securities rated A and below issued by a single issuer.
The above investment limits may be extended by up to 2% of the NAV of the scheme with prior approval of the Board of Trustees and Board of Directors of the AMC, subject to compliance with the overall 12% limit.
Long term rating of issuers shall be considered for money market instruments; if unavailable, the most conservative long term rating from CRA mapping shall be used. Exposure to government money market instruments is treated as exposure to government securities.
The circular applies to all new schemes from the date of issuance. Existing schemes are grandfathered till the maturity of the underlying debt and money market securities.
This circular is issued in exercise of powers conferred under Section 11 (1) of the SEBI Act, 1992, read with Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.
Source: SecMarx — Introduction of credit risk based single issuer limit for investment by mutual fund schemes in debt and money market instruments. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.