Sebi Issues a Framework for Mf Investment in Debt Products With Special Features

New Delhi: With restrictions on exposure to debt securities with special features of mutual funds, regulator Sebi said on Wednesday 10% of such securities that mutual funds were issued under all schemes. A single issuer who states that it is not permitted to own any of the above.

Currently, there are no specific investment restrictions on such products.
Investment trusts invest in specific debt securities with special functions. Can be converted to subordinated or stock at the time of triggering a pre-specified event for loss absorption.

In addition, additional Tier I and Tier 2 bonds issued under the Basel III framework may be subject to specially-featured debt certificates.
These products are generally considered risky for investors looking to secure fixed income and capital security through investing in fixed income investment trust schemes.

In Circular, Watchdog said, “Investment trusts under all its schemes must not own more than 10 percent of such commodities issued by a single issuer.”

Regulators have noted that mutual fund schemes do not invest more than 10% of the net asset value (NAV) of their debt portfolio in such products. In addition, this scheme does not invest more than 5% of the NAV in the debt portfolio in such products issued by a single issuer.

These investment limits on mutual fund schemes fall within the overall limits of bonds issued by a single issuer as specified in Sevi’s mutual fund standards, as well as other prudent limits on bonds. ..

The step of limiting the exposure of fixed income funds for such products and also limiting the exposure to specific issuers is a good step to mitigate risk. Harshad Chetanwala, co-founder of, said this works for the benefit of investors.

Divam Sharma, co-founder of GreenPortfolio, said this is from Sebi because it puts restrictions on single issuers and the entire fund NAV that allow mutual fund schemes to invest in special-featured bonds. Welcome explanation.

According to Sevi, investments in trust schemes that exceed the date limit of this circulation may be exempt, and the trust scheme will apply to such trusts until the investment falls below the specified limit. We will not make any new investments.

Regarding the provisions of a segregated portfolio in the Scheme Information Document (SID), Sebi stated that debt schemes investing in such products need to ensure that the scheme’s SID has a segregated portfolio provision. ..

If such goods are amortized or converted to capital according to one of the proposals, Sevi said the date of the proposal could be treated as a trigger date.

However, regulators said that if such goods were amortized or converted to equity without a proposal, the amortization date or the conversion date of the debt securities to shares could be treated as a trigger date.

On the trigger date, the Asset Management Company (AMC) can optionally create a segregated portfolio with a trust scheme.

Specially-featured bond side pockets give investors the opportunity to end the rest of their investment trust schemes without giving up the opportunity to participate in the recovery from these products, according to Sharma of the Green Portfolio. Will give.

In addition, the AMC or valuation body must ensure that the issuer’s financial stress and the issuer’s ability to repay membership fees / borrowings are reflected in the valuation of securities after the trigger date.
Sevi also clarified that the maturity of all perpetual bonds should be treated as 100 years from the date of issue of the bond for evaluation purposes.

In addition, Mr Sebi said closed-end debt schemes do not invest in perpetual bonds.

“In addition, closed-end schemes are only allowed to invest in securities that mature at or before the scheme’s maturity date, so they are not allowed to invest in perpetual bonds,” Sharma said. ..

This new framework will be effective from April 1st.

Sebi issues a framework for MF investment in debt products with special features

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