Sebi To Fix Overall Limit On Fii Dedicated Debt Funds

The guidelines are to be announced today by the Securities and Exchange Board of India. The norms follow Finance Minister P Chidambaram's announcement on September 6 that FIIs would be allowed to set up such debt funds.

It has been stipulated that the money brought in by the 100 per cent debt funds can be invested in debt instruments issued by corporates.

The guidelines have thus effectively paved the way for an alternative route for foreign institutional investors to bring in 100 per cent of their dedicated funds into the country.

The existing system as per which FIIs are allowed to bring in money in the ratio of 30 per cent debt and 70 per cent equity will continue to remain operational, although no FII has so far opted for this system.

 

According to informed sources, the requirement of separate registration for FIIs intending to set up 100 per cent debt funds is mandatory.

No separate registration will be required if they opt for the earlier route.

The new guidelines envisage that the

overall outer limit for each individual fund will be decided by the regulator within the existing framework for external commercial

borrowing.

The proposal for the new guidelines was forwarded for clearance by the regulator yesterday through a circular resolution. However, the clearance could not be obtained as one of the board members was not available.

The regulations are expected to be cleared today and made public.

Sources said that since the matter was pertaining to foreign institutional funds, and investment in debt forms a part of overall external commercial borrowings, the regulator has to fix an overall cap on each individual fund.

It is expected that FIIs will now set up fresh funds for investing into debt instruments under the framework of these new regulations.

Marketmen have been waiting anxiously for the clearance of this proposal as this will pave the way for giving a boost to the debt market in India.

Highlights

Separate registration for 100 per cent debt funds required

Cap on fund size to be decided by SEBI

The existing system under which FIIs are allowed to bring in money in the ratio of 30 per cent debt and 70 per cent equity will continue