Sebi wants mutual funds to track emerging credit risks in exposures

Sources said the regulator wants MFs to rely less on rating agencies as they have been slow to react or flag credit risks in recent cases

The Securities and Exchange Board of India (Sebi) wants mutual funds (MFs) to build mechanisms that can give early-warning signals to indicate a deteriorating credit profile of a borrower. According to sources, the market regulator wants sudden yield movements to be included in this system to improve MFs’ ability to track build-up of stress.

“Sudden spikes in yields can give an early signal of stress build-up or liquidity issues. However, the industry would need to evolve a nuanced approach and fine-tune it further,” said Dwijendra Srivastava, chief investment officer (fixed income) at Sundaram MF. 

The sources said the regulator wants MFs to