Page 19 - Banking Finance October 2020

MUTUAL FUND

Back in 2011, Bajaj Finserv had re- large equity funds investing in small- tive of the size of the investments. "It
ceived SEBI's nod to set-up a mutual cap stocks. has been decided that in respect of
fund business, but the MF arm was purchase of units of mutual fund
never launched. Three new mutual funds schemes (except liquid and overnight
schemes), closing NAV of the day shall
Recently, NJ India Invest and Samco rules that come into effect
Securities had received in-principle be applicable on which the funds are
approval from the market regulator for from January 2021 available for utilization irrespective of
starting the MF business. Applications Securities Exchange Board of India the size and time of receipt of such
application," said the Sebi circular. The
from Zerodha Broking and Frontline (Sebi), has recently announced a slew
Capital Services are still being re- of measures for mutual funds industry. new NAV rules will not be applicable to
viewed by SEBI. The market regulator has modified liquid and overnight funds.
certain mutual funds rules to make Under current rules, the NAV of the
them more transparent and investor same day is considered for purchases
Liquidity risk aggravates in
friendly. Sebi also issued norms to of less than Rs. 2 lakh, even if the
times of economic distress make debt funds safer after the whole money does not reach the asset man-

on redemption pressure episode of Franklin Templeton debt agement company (AMC), but the or-
scheme uncovered. Mutual funds have der is placed within the cut-off time.
Liquidity risk is the risk of the market been provided sufficient time to com-
for a debt security drying up. The con- ply with the new rules. Here are some Sebi has tweaked the portfolio alloca-
cept also applies to equity funds where of the changes in mutual funds that will tion rules for multi cap equity mutual
it takes the form of impact cost, which be applicable from January 2021. fund schemes recently. According to
is the adverse movement in a stock as the new rules, multi cap mutual funds
a result of a mutual fund transacting New Riskometer tool will have to invest at least 75% in eq-
in it. It is particularly an issue for large Sebi has introduced detailed guidelines uities. At present the minimum equity
mutual funds in mid- and small-cap for determining the place of a mutual allocation must be 65%. Also, going
spaces. fund on its riskometer tool. The new forward, these schemes will have to
system introduces a fresh category of invest at least 25% each in large cap,
Investors tend to redeem large sums
'very high' risk. It replaces the old mid cap and small cap stocks. Currently
of money from debt funds during eco- there is no such allocation restriction
nomic distress, and this aggravates the model based simply on a scheme's cat- and fund managers can invest across
existing liquidity problem, as happened egory without adequately considering the market cap as per their own
in the case of Franklin Templeton in its actual portfolio. The circular will be
effective from January 1, 2021. Risk-o- choice.
April. In its recent risk-o-meter circu-
meter shall be evaluated on a monthly Sebi has provided time till January 31,
lar, Sebi made liquidity risk a factor in
basis and AMCs shall disclose the Risk- 2021 to mutual fund houses to comply
assigning a risk classification to a debt o-meter along with portfolio disclosure
mutual fund. The lowest weight (least for all their schemes on their website with the latest rules, within one month
risk) is for government and PSU bonds and on AMFI website within 10 days of Amfi releasing the next list of large
followed by AAA corporate bonds with- cap, mid cap and small cap stocks.
from the close of each month. Mutual
out credit enhancements, structured Labelling norms of 'dividend op-
Funds also have to publish a history of
obligations or embedded options. The tion'
risk increases for lower-rated bonds riskometer changes every year. Sebi introduced labelling norms for the
and those with such exotic features. Any change in risk-o-meter shall be dividend options of mutual funds which
communicated to unitholders of that
In case of equity, the circular assigns particular scheme. will come into effect from 1st April
higher risk weights to securities with 2021. Under the new norms, mutual
higher impact cost. Investors must also Change in NAV calculation funds will have to rename dividend
assess the liquidity risk of a mutual From January 1, investors will get the options as income distribution cum
fund. Typically, lower-rated corporate purchase NAV of the day when capital withdrawal effective April 1,
bonds have the lowest liquidity as do investor's money reach AMC, irrespec- 2021. T

BANKING FINANCE | OCTOBER | 2020 | 19