MF wrap: Industry to witness flurry of regulations from SEBI

The 43-player active mutual fund industry will be witnessing slew of regulations in the near future. SV Muralidhar Rao, Executive Director, Securities and Exchange Board of India at CII Mutual Fund Summit held earlier this week talked about the regulations that SEBI is working on.

Valuation of debt securities
The capital market regulator is in discussion with mutual fund houses to review and implement valuation guidelines for corporate bonds.

“We are in discussion with stake holders and we have decided to review the (valuation of debt securities and money market instruments) norms. We will be implementing it in due course while giving the industry a reasonable time to adjust to the change,” said Rao addressing the CII Mutual Fund Summit.

The regulator will come out with a consultation paper soon and invite comments and feedback. After that, it would issue guidelines on how mutual funds should value their underlying securities.

Rao said the market regulator is taking a closer look at two areas of the valuation norms. One, how to value debt securities that mature in less than 60 days and two, securities that have been downgraded to 'below investment grade'.

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At present, debt securities that mature in less than 60 days are not marked to market. They are valued on an amortised basis, a method where daily interest is added to ensure the security's price goes up in a linear fashion.

Commodity MFs in India

Without giving a timeline, Roa said it will soon allow mutual funds to invest in commodity derivatives segment.
So far, Indian mutual fund houses are not allowed to invest in commodities other than gold. However, a few fund houses have thematic funds, which invest in companies engaged in commodities business.

Commodity funds will be able to invest in a broader spectrum of agricultural, metal and mining commodities such as food crops, spices, fibres, copper, aluminium, oil, gold, silver and platinum.

Defining retail investors
SEBI will soon define retail investors for B30 incentives. SEBI has directed fund houses to charge the additional 30 bps applicable on B30 cities only on retail AUM. Currently, the AUM of the mutual fund industry stands at Rs 24 lakh crore.