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Sebi introduces credit rating wise investment limit for active debt funds

Earlier in May, Sebi had introduced credit risk based single issuer limits for debt ETFs/ Index Funds in order to effectively manage the risk associated with such investments

November 29, 2022 / 04:58 PM IST

Securities and Exchange Board of India (Sebi) on November 29 introduced credit rating-based single issuer limit for investment for most actively managed debt mutual fund schemes.

The market regulator in a circular said for schemes other than credit risk funds, a mutual fund scheme will not invest more than 10 percent of its NAV (net asset value) in debt and money market securities rated AAA by a single issuer. Similarly, the limit is 8 percent for those rated AA and 6 percent for those rated A and below.

“The above investment limits may be extended by up to 2 percent of the NAV of the scheme with prior approval of the Board of Trustees and Board of Directors of the AMC (asset management companies), subject to compliance with the overall 12 percent limit specified in clause 1 of Seventh Schedule of MF Regulation,” Sebi said.

Under Sebi MF Regulations, a mutual fund scheme is not allowed to invest more than 10 percent of its NAV in debt instruments, issued by a single issuer. This new rule further defines the investment limits according to credit profile, hence minimising risks.