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Sebi directs open-ended debt MFs to maintain 10% liquidity buffer

Cash, government securities, treasury-bills and repo on government securities qualify as 'liquid assets'

Sebi | Mutual Funds | Liquidity

Samie Modak  |  Mumbai 

Industry players said the latest move is akin to banks having a statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirement.

In a circular on Friday, the and Exchange Board of India (Sebi) directed all open-ended debt mutual fund schemes to maintain 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 Cash, government securities, treasury-bills and repo on government qualify as ‘liquid assets.’

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At present, there is no such mandate. However, has been nudging fund houses to build adequate buffers.

Industry players said the latest move is akin to banks having an SLR (statutory ratio) and CRR (cash reserve ratio). They said this will help improve liquidity management, but would come at the cost of returns.

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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First Published: Fri, November 06 2020. 19:22 IST