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TMI BlogReview of norms for participation in derivatives by Mutual FundsX X X X Extracts X X X X X X X X Extracts X X X X ..... o from interest rate volatility, SEBI held a series of meetings with various stakeholders of the mutual fund industry. Accordingly, it has been decided to implement the following: Exposure Limits 3. In addition to the existing provisions of SEBI circular No.IMD/DF/11/2010 dated August 18, 2010, the following are prescribed: i. To reduce interest rate risk in a debt portfolio, mutual funds may hedge the portfolio or part of the portfolio (including one or more securities) on weighted average modified duration basis by using Interest Rate Futures (IRFs). The maximum extent of short position that may be taken in IRFs to hedge interest rate risk of the portfolio or part of the portfolio, is as per the formula given below: (Portfolio Modifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with: i. The correlation for past 90 days between the portfolio and the IRF is at least 0.9 or ii. The correlation for past 90 days between the part of the portfolio (excluding the hedged portions, if any) i.e. at least 15% of the net asset of the scheme (including one or more securities) and the IRF is at least 0.9. c) At no point of time, the net modified duration of part of the portfolio being hedged should be negative. d) The portion of imperfect hedging in excess of 20% of the net assets of the scheme should be considered as creating exposure and shall be included in the computation of gross exposure in terms of Para 3 of SEBI circular dated August 18, 2010. iv. The basic characteristics of the scheme should not be affected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : i. Separately disclose the hedging positions through IRF (both perfectly and imperfectly) in respective debt portfolios as per the format prescribed in para-13 of SEBI circular no.IMD/DF/11/2010 dated August 18, 2010, ii. Investment in interest rate derivatives (both IRS/IRF) shall also be disclosed in the monthly portfolio disclosure as per para-H of SEBI Circular No. CIR/IMD/DF/21/2012 dated September 13, 2012 and iii. Disclosure of the details of interest rate derivatives (both IRS/IRF) used for hedging along with debt and money market securities transacted on its website and also forwarded to AMFI as per para-B(3) of SEBI Circular No.Cir/IMD/DF/6/2012 dated February 28, 2012. Applicability 6. The aforesaid circular stands mod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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