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Housing Finance Firms Cheer As SEBI Hikes Debt MF Investment Cap

Housing finance companies (HFCs) are elated with the Securities and Exchange Board of India‘s move to hike the investment limit for debt mutual funds to 15% from 10% earlier.

Feb 23, 2017 / 05:08 PM IST

Himadri Buch
Moneycontrol News

Housing finance companies (HFCs) are elated with the Securities and Exchange Board of India’s move to hike the investment limit for debt mutual funds to 15 percent from 10 percent earlier.

The move assumes significance in the wake of the government's push for the low-cost housing sector.

According to the big wigs of the housing finance industry, this move will help get an increased flow of capital in the underlined companies.

Keki Mistry, Vice Chairman and CEO of Housing Development Finance Corporation (HDFC) said, “It is positive. The total debt funds in the mutual fund industry is roughly about Rs 12 lakh crore. So, this should release an additional capital of Rs 60,000 crore, so we have more funds now. Mutual funds would definitely want to deploy more money where they get higher returns with lesser risks. Affordable housing is definitely that space.”

The additional funds will come the way of the top rated housing finance companies from this move.


“Out of the total AUM, debt mutual funds are worth 10 lakh crore and 15% of this has been allowed to invest in housing finance companies,” said Mahendra Jajoo, Head-Fixed Income, Mirae Asset Global Investment.

“Companies like DHFL, HDFC Ltd, LIC Housing will be benefitted from the hike in investment limit,” he added.

Mutual funds tend to invest only in the top-rated companies, which are just a handful right now, this Rs 60,000 crore could go to only three or four players.

As per the new norms from SEBI, debt mutual funds can now invest up to 15% of their total net assets in housing finance companies. The norms have been relaxed as part of the efforts to channelize more funds towards affordable housing activities. Earlier the debt mutual funds were allowed to have an exposure of only up to 10% as regards housing finance companies.
In a circular, SEBI has stated mutual funds would need to ensure that the additional exposure to the securities issued by housing finance companies have high investment grade rating. Besides, the entities should have been registered with the National Housing Bank (NHB). The guidelines for sectoral exposure in debt oriented mutual fund schemes put a limit of 25 percent at the sector level and an additional exposure not exceeding 10 percent (over and above the limit of 25 percent) in financial services sector only for HFCs.
"In light of the role of housing finance companies especially in affordable housing and to further the government's goal under Pradhan Mantri Aawas Yojana (PMAY), it has now been decided to increase additional exposure limits provided for HFCs in financial services sector from 10 percent to 15 percent," SEBI stated.

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