Sebi Norms On MFs’ FD Exposure To Hit FMPs, AUM

The Securities and Exchange Board of India (Sebi)’s circular announcing strict norms for the fund houses that park money in short-term deposits of scheduled commercial banks is likely to pose severe challenges for the mutual funds industry, reports The Financial Express.
The heads of the debt funds will have an informal meeting on Wednesday in Mumbai to take examine the implications of the circular.

A senior fund manager from a global mutual fund house said that the fund houses or schemes having exposure of more than 20% in the short-term deposits of the scheduled commercial banks are likely to face problems in regularising their previous investments in short-term deposits as the stipulated time of three months may not be enough. The meeting of the fixed-income manager will assess the impact of the Sebi circular on the MF industry, he said.

Sebi's new norms may have an impact on the fixed maturity plans (FMPs) of the MF industry.

More than 70% of the prospectus filed by MF industry recently are meant for FMPs with three months to 13 months horizons.

Commenting on the impact of the circular, Ram Kumar, Head, Fixed-income, SBI MF, said that the number of FMPs to be launched in future will come down and its popularity as MF product may also take a hit. The overall collection of the MFs may also come down, he said.

Taking a cue from Ram Kumar, Sandesh Kirkere, CEO, Kotak Mutual Fund, said that the MFs need to do a little bit of re-balancing act in the wake of the Sebi circular. However, he said that it has brought clarity in the concept of `pending deployment’. The new norms will bring uniformity in the MFs investment pattern in the banking sector.

Sebi circular issued on Monday said that no mutual fund scheme shall park more than 15% of the net assets in the short term deposit(s) of all the scheduled commercial banks put together. However, in certain cases, it may be raised to 20% with prior approval of the trustees, it added.