Sebi asks debt MFs to hold 10% corpus in liquid assets

To ensure sufficient liquidity, markets regulator Sebi on Friday made it mandatory for all open-ended debt mutual fund schemes to hold at least 10 per cent of their net assets in liquid assets.

To ensure sufficient liquidity, markets regulator Sebi on Friday made it mandatory for all open-ended debt mutual fund schemes to hold at least 10 per cent of their net assets in liquid assets. Besides, it also mandated open-ended debt schemes to conduct stress testing.

The new rules are aimed at improving risk management and ensuring sufficient liquidity. "All open ended debt schemes (except overnight fund, liquid fund, gilt fund and gilt fund with 10-year constant duration) shall hold at least 10 per cent of their net assets in liquid assets," Sebi said in a circular.

Liquid assets include cash, government securities, treasury bills and repo on government securities. Currently, liquid schemes are required to hold a minimum 20 per cent in liquid assets. However, other debt oriented schemes have no such requirement.

In case the exposure in such liquid assets falls below the threshold mandated, the asset management companies (AMCs) will have to ensure compliance with the requirement before making any further investment. "It is decided to mandate all open ended debt schemes (except overnight scheme) to conduct stress testing," the circular said.

At present, stress testing is mandated for liquid funds and money market fund category. AMC would stipulate the guidelines to carry out stress testing for the aforementioned debt schemes, the regulator noted.

Sebi further said a committee has been set up to deliberate on the issue of holding assets in liquid assets as well as stress testing. The recommendations of the committee will be evaluated and based on the same, the norms regarding the holding of liquid assets and methodology of stress testing may undergo change.

The guidelines on holding certain percentage in liquid assets would come into effect from February 1, 2021, and those on stress testing will become applicable from December 1, 2020, it said..