Thread by @vaid_varun

@SEBI_India tough stance against #mutualfund houses suggest that time for them to introspect has arrived. Now, restructuring of #riskmanagement framework will discourage mutual funds from taking excessive risk & mask them with complex credit structures. @livemint @NDTVProfit

Implications of #Riskmanagement practices for #debtfunds -

1. Now, in case of any unforeseen liquidity crunch, #LiquidFunds will be able to honour redemptions. The highly liquid #portfolio would make them a safer but less rewarding for #investors.
@livemint @NDTVProfit @bsindia

2. @SEBI_India's decision of obsoleting valuations based on amortization would make NAVs of #debtfunds more transparent. Now, all #debt & #moneymarket instruments will have to value their #portfolio on #MarkToMarket basis. @livemint @NDTVProfit @BSEIndia @OutlookMoney @cafemutual

3. #MutualFund houses have been mandated that, fresh #investments in #CommercialPapers & #NonConvertibleDebentures shall be made only in listed CPs. Because, listed NCDs & CPs may have slightly better liquidity profile as compared to their unlisted peers. @livemint @NDTVProfit

4. To safeguard #investors from getting exposed to higher #creditrisks through liquid & overnight #funds, it has been mandated that these MFs won't be able to #invest in short-term deposits, debt & money market securities having structured obligations or credit enhancements.

5. To make it impossible to mask the risk with unreliable credit enhancement will ensure more security to #investors.

MF schemes can't #invest more than 10% of assets in debt & money market instruments with credit enhancements & group exposure also can't be more than 5%.

6. To discourage #investors from exiting #liquidfunds within the first 7 days, will give fund managers more breathing space in #portfolio creation. Those #investing in liquid fund will need to ensure that their #investment tenure is at least 7 days. @livemint @NDTVProfit @bsindia

7. #Debtfunds cannot #invest more than 20% of assets in any sector. @SEBI_India reduced the additional exposure to Housing Finance Companies to 10%. Can invest only 5% of assets in securitised debt based on retail or affordable housing loan. @livemint @NDTVProfit @bsindia

(Point 7 continued)
#Investors would be less exposed to risks arising out of sectorial concentration. High exposure of #debtfunds to NBFC sector has been one of the primary factors behind the on-going credit crisis.@livemint @NDTVProfit @bsindia @EconomicTimes @FinancialXpress

8. To safeguard #mutualfunds & #investors from sudden fall in the stock prices offered for credit enhancements. A security cover of at least 4 times for #investment by MF schemes in debt securities having credit enhancements backed by equities directly or indirectly is mandated.