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Review of investment norms for mutual funds for investment in Debt and Money Market Instruments

..... rd of Trustees of Mutual Funds/ Association of Mutual Funds in India (AMFI) Sir / Madam, Subject: A. A copy of the Gazette Notification No. SEBI/LAD-NRO/GN/2019/37 dated September 23, 2019 on amendments to SEBI (Mutual Funds) Regulations, 1996 is enclosed for reference. B. Investment in Listed and Unrated Debt instruments In order to enhance transparency and disclosure for investment in debt and money market instruments by mutual funds, the following has been decided: 1. Mutual fund scheme shall not invest in unlisted debt instruments including commercial papers (CPs), other than (a) government securities, (b) other money market instruments and (c) derivative products such as Interest Rate Swaps (IRS), Interest Rate Futures (IRF), etc. whic .....

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..... s, shall only be in listed NCDs till they comply with the above mentioned requirements. 3. For the purpose of the provisions of paragraph B, listed debt instruments shall include listed and to be listed debt instruments. 4. All fresh investments by mutual fund schemes in CPs would be made only in CPs which are listed or to be listed with effect from one month from the date of operationalization of framework for listing of CPs or January 01, 2020, whichever is later. 5. Further, investment in unrated debt and money market instruments, other than government securities, treasury bills, derivative products such as Interest Rate Swaps (IRS), Interest Rate Futures (IRF), etc. by mutual fund schemes shall be subject to the following: a. Investment .....

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..... ove shall not be applicable on investments in securitized debt instruments, as defined in SEBI (Public Offer and Listing of Securitized Debt Instruments) Regulations 2008. 3. Investment in debt instruments, having credit enhancements backed by equity shares directly or indirectly, shall have a minimum cover of 4 times considering the market value of such shares. AMCs may ensure that the investment in debt instruments having credit enhancements are sufficiently covered to address the market volatility and reduce the inefficiencies of invoking of the pledge or cover, whenever required, without impacting the interest of the investors. In case of fall in the value of the cover below the specified limit, AMCs should initiate necessary steps to e .....

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..... osure as specified in SEBI Circular No. SEBI/HO/IMD/DF2/CIR/P/2016/35 dated February 15, 2016, the following additional provisions have been decided: a. The investments by debt mutual fund schemes in debt and money market instruments of group companies of both the sponsor and the asset management company shall not exceed 10% of the net assets of the scheme. Such investment limit may be extended to 15% of the net assets of the scheme with the prior approval of the Board of Trustees. b. For the purpose of this provision, Group shall have the same meaning as defined in paragraph B(3)(b) of SEBI Circular No.SEBI/HO/IMD/DF2/CIR/P/2016/35 dated February 15, 2016. F. Internal Credit Risk Assessment at the AMC Paragraph-D of SEBI Circular No.SEBI/H .....

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