In a circular on Friday, the Securities and Exchange Board of India (Sebi) directed all open-ended debt mutual fund schemes to maintain liquidity buffer.
“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,” said Sebi. Cash, government securities, treasury-bills and repo on government securities qualify as ‘liquid assets.’
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At present, there is no such mandate. However, Sebi has been nudging fund houses to build adequate liquidity buffers.
Industry players said the latest move is akin to banks having an SLR (statutory liquidity ratio) and CRR (cash reserve ratio). They said this will help improve liquidity management, but would come at the cost of returns.
Sebi has also mandated all debt MF schemes, except overnight funds, to carry out stress testing. The regulator had also set up an expert panel to further deliberate on the issue of investing in liquid assets and stress testing. Based on the panel’s recommendation, Sebi could further tweak the methodology.
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