SEBI caps mutual fund funding in debt with particular options

The Securities and Exchange Board of India (Sebi) has put a restrict on mutual fund funding in debt with particular options, together with Additional Tier 1 (AT1) bonds.
The regulator mentioned that no mutual funds underneath all its schemes ought to personal greater than 10 per cent of AT1 bonds issued by a single issuer. Investment in a single issuer of such debt can not exceed 5 per cent of belongings, Sebi mentioned.
Moreover, funds with such investments and even enabling provisions for such investments ought to allow facet pocketing of their schemes, the regulator mentioned. However current investments above the bounds might be grandfathered – allowed to proceed — and the restrict will solely apply to contemporary investments. The round will come into impact from April 1.
Several mutual funds had been hit not too long ago over their investments in Yes Bank’s AT1 bonds, which had been written down earlier than fairness following the Reserve Bank of India’s rescue plan for the financial institution. Nearly Rs 37,000 crore was invested by MFs in perpetual bonds.

The restrictions will apply to all debt devices which have particular options like subordination to fairness and convertible to fairness upon set off of a pre-specified occasion for loss absorption. Currently, there are not any specified funding limits on such devices, that are thought-about to be riskier than different debt devices.