SEBI Announced New Rules For Investing in Mutual Funds

SEBI Announced New Rules For Investing in Mutual Funds

SEBI (Securities Exchange Board of India) has latterly announced a slew of measures for the mutual fund industry. The market regulators have been modifying certain mutual funds rules to make them investor-friendly in quite some ways. The recent announcements of the new 'Flexi cap category' under the equity schemes have consoled the investors who were circumspect about their investments in the multi-cap funds due to the change in their portfolio allocation rules proclaimed by the SEBI this September. Here we are listing the recent changes made in the mutual funds announced by the Securities Exchange Board of India:

Introduction of Flexi cap category

The market regulators have launched a new ‘Flexi-cap category’ for the mutual funds that will be compelled to invest at least 65% of the corpus in the equity but will have no constraints on investing in the small, middle, and large-cap company stocks.

Earlier in September, Sebi proclaimed to twitch the asset allocation rules for the multi-cap funds. According to that circular, the multi-cap funds must finance a minimum of 75% in the equity and equity-related instruments with a minimum 25% allocation to the small, middle, and large-cap company stocks.

The current equity schemes will be able to re-declare themselves under the new category and recommence to run their multi-cap funds in the same practice without any modification in portfolio allocation or financing process, just by replacing the scheme's name.

Restoration of the pre-covid cut-off time for mutual fund businesses

SEBI has reclaimed the pre-covid cut-off timings for mutual funds, effective from November 9, 2020. In April, SEBI has also reduced the cut-off timings of all mutual funds from 1 pm to 3 pm and for liquid and late schemes to 12.30 pm from 1.30 pm.

On October 19, Sebi had altered the cut-off timings to 3 pm for all schemes except for debt schemes and conventional amphibious schemes.

Promptly, the cut-off time has been brought back to 3 pm for the debt and traditionalistic hybrid funds as well. The cut-off time for the purchase of the liquid and the overnight funds will stand refurbished from 12.30 pm to 1.30 pm. The reclamation cut-off time for equity, debt, and liquid funds will stand restored to 3 pm. The SEBI action follows the RBI move extending the total debt market timings for most of the securities to 3.30 pm, also with effect from 9 November.

Enhancement of overseas investment for mutual funds

SEBI in a circular published on November 5, increased the foreign investment limit per mutual fund house to $600 million, from the current $300 million. $50 million would be maintained for each mutual fund individually, within the overall production limit of US $ 7 billion.

Mutual funds can advance in overseas Exchange Traded Fund subject to a preponderance of US $ 200 million per mutual fund, within the overall industry frontier of US $ 1 billion. According to the tote circular, the mutual fund launching a New Fund Offer (NFO) and intending to finance overseas will be obliged to specify the total amount that will be invested outside India and will use the limit particularized within six months.

For extant schemes, Sebi defined a headroom of 20% of the assets under the management (AUM) in the preceding three months in overseas securities, for investment in foreign securities directed to the overall limit of $600 million.

Holding liquid assets in the open-ended debt schemes

In an added circular dated November 6, SEBI has requires open-ended debt mutual funds, excluding liquid and overnight funds, to operate with at least 10% of their corpus in the liquid assets. Liquid assets are described as government securities, cash, treasury bills, and repo on government securities.

Liquid funds, after April 2020, were already required to hold at most limited 20% of their corpus in liquid assets. Overnight funds are authorized to invest in securities mellowing in one day and hence also invest in liquid assets. Similarly, gilt funds and gilt funds within the 10-year steadfast maturity have been excused because they are obligated to invest 80% of their assets in the government securities, as per their classification rules.

The circular has also claimed mutual funds to stress test their portfolios. The jurisdictions for the liquid holdings will be with effect from 1st February 2021 and the stress testing rules will be valid from December 1, 2020.