Page 19 - Banking Finance July 2021

MUTUAL FUND

For all regulatory limits, calculations and exposure to a single counterparty India's directive soon. The SAT heard
other than asset allocation limits (for in such transactions should not exceed the arguments of both sides on June 25
Macaulay duration, risk-o-meter, 10 per cent of the net assets of the and then reserved its order.
investment restrictions pertaining to scheme, Sebi said in a circular.
Franklin Templeton, which wound up
issuer, sector and group), the base to
However, if mutual funds are six debt schemes last year, contends
be considered is 100 per cent of net transacting in IRS through an that SEBI's order earlier this month
assets, Sebi said in a circular.
electronic trading platform offered by banning it from launching any debt
For asset allocation limits applicable the Clearing Corporation of India Ltd scheme for two years with immediate
for banking and PSU bond fund, floater (CCIL), the single counterparty limit of effect was against the principles of
fund, credit risk fund and corporate 10 per cent will not be applicable, it natural justice.
bond funds, the base will be considered added.
as net assets excluding the extent of The regulator had also imposed a
minimum stipulated liquid assets of 10 In market parlance, an interest swap penalty and asked the fund house to
per cent, it added. is a derivative product used for hedging refund investment management and
interest rate risk by mutual funds. It is advisory fees collected for the six
Explaining the framework, Bagla said used between companies to swap their schemes.
in banking and PSU debt funds, the future interest rate payments from
original minimum allocation to debt fixed to floating or vice-versa. FT vehemently opposed the
securities issued by such funds was disgorgement, saying the returns of
earlier given as 80 per cent of the total the funds exceeded those of the
assets under management (AUM). ITI Mutual Fund launches indices and had benefitted investors. It
Dynamic Bond Fund also said half of the investors were
So out of 100 per cent, 80 per cent was institutions and they had not filed a
to be kept in securities issued by ITI Mutual Fund has launched the ITI single complaint against the fund
banking and PSU bond funds and 10 per Dynamic Bond Fund. The NFO opens on house until the schemes were closed.
cent to be put in government June 25 and closes on July 9, 2021. The
securities, he said. minimum application amount is Rs FT also denied that all the schemes
5,000 and multiples of Re 1 thereafter. were not one but different because the
Sebi comes out with new The bond fund will be benchmarked returns varied for all of them.

guidelines on mutual fund against CRISIL Dynamic Debt Index. However, SEBI argued that FT had not
complied with its well-defined rules and
investment in interest rate According to the press release, the
objective of the fund is to maximise circulars. The market regulator said its
swap returns through an active directives were based on forensic

Markets regulator Sebi put in place management of portfolio comprising of reports and it had passed the orders
fresh guidelines for participation of debt and money market instruments. after seeking FT's views.
mutual fund schemes in interest rate The fund will follow a strategy that is SEBI also said the amount involved -
swap, a derivative product. structured in a manner that offer Rs. 25,000 crore - was not small and
Mutual funds can enter into plain investors the benefit of dynamic fund only Rs. 17,000 crore had been
vanilla Interest Rate Swaps (IRS) for management through flexible asset recovered. It said the matter has been
hedging purposes. The value of the allocation and active duration taken up by various high courts and
notional principal in such cases must management. even the Supreme Court.
not exceed the value of respective SEBI directed FT on June 8 to return
existing assets being hedged by the SAT to pass order in fund management fees worth Rs.
scheme. Franklin Templeton case 451.63 crore to the investors of the six
In case participation in IRS is through The Securities Appellate Tribunal will debt funds. It also levied a 12 percent
over the counter transactions, the pass its order in the matter of Franklin interest fee on this amount, taking the
counterparty has to be an entity Templeton's plea challenging the total amount to be disgorged to Rs.
recognized as a market maker by RBI Securities and Exchange Board of 512.5 crore.

BANKING FINANCE | JULY | 2021 | 19