Page 18 - Banking Finance November 2024

MUTUAL FUND

mum daily systematic investment plan The new investment product aims to commission structure for distributors to
(SIP) limit to Rs. 100 for all the exist- provide investors with a professionally enhance the adoption of passive prod-
ing schemes offering SIP except for its managed and well-regulated product ucts among investors.
ELSS Tax Saver and Unit-Linked Insur- that offers greater flexibility and higher SEBI has already floated a consultation
ance Plan. The minimum number of risk-taking capabilities for higher ticket paper on MF Lite and received com-
instalments of daily SIPs is 60. LIC MF size. At the same time, it seeks to en- ments from the industry and investors.
has also introduced Daily SIP plan in LIC sure that appropriate safeguards and
Unlike active fund management, the
MF Liquid Fund. risk mitigation measures are in place.
risk and expenses on passive funds are
The AMC has also reduced the monthly Safeguards for the new product will very minimal as they track an index.
minimum SIP investment limit to Rs. include no leverage, no investment in
200 and quarterly minimum SIP invest- unlisted and unrated instruments be- Hence, SEBI plans to come out with
ment limit to Rs. 1,000 for select yond those already permitted for mu- lighter regulation for MFs, which want
to focus only on passive products.
schemes. The minimum step-up facil- tual funds and derivatives exposure lim-
ity has been revised to Rs. 100. The ited to 25 per cent of AUM (asset un- Madhabi Puri Buch, Chairperson, SEBI,
changes will come into force. der management) for the purposes said a separate regulation for passive
other than hedging and rebalancing. funds in the form of MF Lite is close to
The small-ticket SIP was recently an-
nounced by market regulator SEBI to completion and will be announced soon.
improve access to mutual fund invest- Mutual fund distributors The role of distributors is very impor-
ments in India. to get viable commission tant for any product to succeed and
RK Jha, Managing Director & Chief of selling passive funds too the regulator is open to suggestions on
Executive Officer, LIC Mutual Fund, a viable distributor commission struc-
SEBI plans to finalise MF Lite regulation ture for passive funds, she said at the
said a cut in minimum daily SIP limit will
attract more youngsters and working for passive funds and introduce a new Annual General Meeting of AMFI.
population into MF investments.

SEBI allows mutual funds to buy, sell credit default
SEBI's new asset class
swaps
The Securities and Exchange Board of
India (SEBI) has cleared the deck for a NEW DELHI: Markets regulator Sebi allowed mutual funds to both buy and
new asset class/ investment product, sell Credit Default Swaps (CDS), a move aimed at increasing liquidity in the
which will bridge the gap between corporate bond market. This flexibility to participate in CDS would serve as
mutual funds (MFs) and portfolio man- an additional investment product for mutual funds, Sebi said in a circular.
agement services (PMS). The new prod- Earlier, mutual funds were only permitted to use CDS transactions to buy
uct will bring in depth and variety to the protection against the credit risk of corporate bonds they held. These trans-
investment landscape of the country. actions were limited to Fixed Maturity Plan (FMP) schemes with a duration
At present, the range of investment of more than one year.
products includes mutual funds with a Now, "It has been decided to allow greater flexibility to mutual funds to
minimum investment of Rs 500; port- both buy and sell CDS with adequate risk management," Sebi said.
folio management services with a In market parlance, Credit Default Swaps are like insurance contracts that
ticket size of Rs 50 lakh; and alterna- protect against default by a borrower.
tive investment limit with a minimum
threshold of Rs 1 crore. For mutual funds, CDS helps manage the risk of debt securities they hold.
When a mutual fund purchases a CDS, it pays a premium to the seller in
There is an investment opportunity exchange for protection if a specific bond (the reference entity) defaults.
between mutual funds and PMS. SEBI's
new asset class will fill this gap be- Under the new framework, Sebi said mutual funds can buy CDS to hedge
tween MFs and PMS in terms of flex- the credit risk of debt securities they hold. However, the CDS exposure can't
ibility in portfolio construction. exceed the value of the debt security being protected.

16 | 2024 | NOVEMBER | BANKING FINANCE