Blow for liquid schemes: Stricter Sebi norms

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

Another blow for liquid schemes. In a bid to reduce systemic risk, Sebi has tightened the valuation norms for such funds. But it seems the new Sebi mandate could also end up restricting companies from parking their surplus funds in liquid schemes, report Mitra Joshi and Archana Shukla of CNBC-TV18.

The Rs 120,000 crore AUM under liquid schemes will soon face a new challenge. Corporate that used to invest money in such short-term risk-free liquid schemes may now look at other options. Here's why -

Sebi has mandated fund houses to incorporate mark-to-market into NAVs after 60 days instead of the 90 days stipulated earlier. Basically, this means investors will get stable NAVs only for first 60 days now instead of 90 days.

While this is Sebi's way of reducing systemic risk of ensuring that funds can live upto the guaranteed returns they promise investors, fund managers aren't happy. They say this will increase volatility in investments.

"Beyond 60 days, at least the straight line matter will not apply and the fund manager or the customer will be forced to recognize volatility in the market," says Jimmy Patel, CEO, Quantum Mutual Fund. "He will not necessarily get ten plus accruals. There is a possibility that he may get fabulous return if the market is good, but one negative can pull down the yields to an overall negative return," he says.

And not just corporate, the move could also have an impact on how retails investors invest as well. "Retail investors or other investors who are invested in liquid fund today, perhaps get a higher return primarily from a 90-day paper. If a 60-day paper gives you lower yield, in that case, they suffer," says Debasish Mallick, MD & CEO, IDBI Asset Management. "It all depends upon the shape of the yield curve technically," he says.

While the move to tighten norms for liquid funds was expected, what the industry is now waiting for is the date of implementation.