Mutual Funds Alert! Boost for investors' sentiment! SEBI takes these big steps

Mutual funds investors' will have heaved a sigh of relief as the Securities and Exchange Board of India (SEBI) has changed the way down MF houses have worked till now.  It has made some changes in the liquid mutual fund's norms that would make people aware of their NAV allocation as the process of payment to the investors would become more transparent and propriety mechanism of fund allocation by the mutual fund houses would get decreased if not become nil, say investment experts.

Speaking on SEBI's crackdown on the mutual funds houses, especially in the liquid mutual funds Kartik Jhaveri, Director — Wealth Management at Transcent Consultants said, "SEBI's initiative is praiseworthy as it would make people aware of their NAV allocation that mutual fund houses allocate to its investors which very few investors know how their NAV is decided. The SEBI's new guidelines would also force the fund managers of the mutual fund houses to carve themselves away from the propriety mechanism of fund allocation as they need to take permission from each and every shareholder if they want to pay more than 2 per cent royalty."

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मार्केट रेग्युलेटर #SEBI ने म्यूचुअल फंड नियम किए सख्त।@anuragshah710 pic.twitter.com/5PMLZsQm7I

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In today's SEBI meeting these were the steps that were taken to avoid any kind of default with the investors and to ensure maximum returns that an investor deserves at the time of withdrawal or maturity:

1] Liquid Schemes shall be mandated to hold at least 20 per cent in liquid assets such as Cash, Government Securities, T-bills and Repo on Government Securities.

2] The cap on the sectoral limit of 25 per cent shall be reduced to 20 per cent. The additional exposure of  15 per cent to HFCs shall be restructured to 10 per cent in HFCs (Housing Finance Companies)  and  5 per cent exposure in securitized debt-based on retail housing loan and affordable housing loan portfolios.

3] The valuation of debt and money market instruments based on amortization shall be dispensed with completely and shall be based on mark to market.

4] All fresh investments in equity shares by Mutual Fund schemes shall only be made in listed or to be listed equity shares.

5] Prudential limits on total investment by a Mutual Fund scheme in debt and money market instruments having credit enhancements and on investment by Mutual Fund scheme in such debt securities of a particular group, as a percentage of the debt portfolio of the respective scheme have been prescribed at 10 per cent and 5 per cent respectively. 

6] There should be adequate security cover of at least  4 times for investment by Mutual Fund schemes in debt securities having credit enhancements backed by equities directly or indirectly.

Summing his views on the above steps taken by SEBI to safeguard investments and returns of the liquid mutual fund's investors Jitendra Solanki, a SEBI registered investment expert said that some check-and-balance was required from SEBI and the steps taken by it was on expected lines.