SEBI’s cash holding norms in Debt funds creates uncertainty in MF Industry

SEBI’s cash holding norms in Debt funds creates uncertainty in MF Industry

SEBI’s cash holding norms: In November 2020, the market regulator has introduced new rules for debt mutual funds. As of the source, SEBI norms mandated all the debt MF schemes to hold 10% of their assets in cash. The move has scattered confusion in the mutual fund industry.

However, the SEBI’s norm moved part of a series of projects initiated by the authority to develop the control of debt funds in the track of the destruction frosty of six debt funds of Franklin Templeton mutual fund in April 2020.

However, the circular continued affected from 1st February 2021.

Some of the market experts felt that the move regarding the 10% holding is included for debt funds with specific mandates produces confusion in the MF industry. However, banking and PSU debt funds, credit risk funds, and corporate bond funds also considered under the norms. For example, the corporate bond funds required to invest at least 80% of their entity in debt paper marked AA+ and above.

However, SEBI standards in regards to holding 10% of assets in cash likely sort until an advisory group framed by SEBI advances lasting standards on least money holding in debt funds.

different fund houses are interpreting the rule differently. In such, allowing some to depart more from regulatory mandates than others who are taking a strict interpretation. 

The mutual fund managers said that on the safe side, they have to invest 80% of their corpus in AA+ rated papers and another 10% in cash. 

Cash along with government securities, treasury bills and repos on government securities. From April 2020, Liquid funds seemed required to hold at least 20% of their assets in cash.