Sebi holding back new FMPs with early exit option: Bhave

The Securities and Exchange Board of India (Sebi) is holding back mutual fund applications for fixed maturity plans (FMPs) where there is an early exit option.

“You can’t have an early withdrawal in FMPs,” Sebi Chairman C B Bhave told reporters on the sidelines of the India-Malaysia Capital Market Forum here on Thursday.

FMPs are close-ended debt schemes that invest in fixed income securities with the same maturity as that of the underlying plan.

The Sebi Chairman said efforts to accelerate liquidity-boosting measures for the bond market were needed to revive fortunes of debt funds.

Recently, FMPs were in the news after several fund houses faced a wave of heavy redemptions from corporate houses, which rushed to redeem their investments after they faced a liquidity problem. Corporates tried to withdraw money from mutual funds, while mutual funds were holding the papers of corporates. “So, who is going to buy if there is not enough liquidity in the market? It was essentially a liquidity crisis,” Bhave said.

On the issue of short-selling, the Sebi chief said there was no plan to ban it as they had no evidence to suggest that short-selling was driving the market down. “We don’t really have evidence that short-sellers are driving the market down,” Bhave said, adding that though some western countries had banned short-selling, their markets had continued to decline. “Their (financial) institutions failed one after another. Some of them have restarted short-selling in their markets,” said the Sebi chief.

The market regulator is also trying to look at what why foreign institutional investors (FIIs) have been sellers on a net basis. One thing that Sebi has found is that FIIs are purchasing as well.