From now onwards, liquid and overnight schemes shall not be permitted to invest in short-term deposits, debt and money market instruments having structured obligations or credit enhancements. Graded exit load shall be levied on investors of liquid schemes who exit the scheme up to a period of seven days. Senior Sebi officials said grading of exit loads will be decided by the regulators and the mutual fund (MF) industry in the days to come. The cap on sectoral limit of 25% shall be cut to 20%. The additional exposure of 15% to HFCs shall be restructured to 10% in HFCs and 5% exposure in securitised debt based on retail housing loan and affordable housing loan portfolios. “Mutual funds which have been very good story in the last three-four years and the assets under management (AUM) almost doubling in four five years. To restore confidence specially in the debt schemes these measures have been taken. They are timely and hopefully confidence of investor’s including the retail investors will continue or be reviving in the mutual funds,” Sebi chairman Ajay Tyagi said after the meeting.

Data from the Association of Mutual Funds in India (Amfi) showed average net assets under management (AAUM) for the month of May stood at around Rs 25.43 lakh crore. Open ended debt oriented schemes AAUM as in May was at `11.55 lakh crore and for liquid funds it was Rs 5.39 lakh crore.

The regulator also came down heavily on the so-called standstill agreements that mutual funds have entered into with certain corporates. “So, we don’t recognise any such standstill agreement, MFs are not banks and there is nothing called standstill and they are investing rather than lending. This is in consultation with the industry to bring in more discipline and to be careful in investing money of the investors by the mutual funds. If further cases come, we will take action,” added Tyagi.

According to the portfolio disclosure as on March 2019, HDFC Fixed Maturity Plan — 1168 Days — February 2016 (1) which was extended by over a year have invested around `66.49 crores in Edisons Infrapower & Multiventures and Spirit Infrapower & Multiventures, group companies of Essel.

Before that, Kotak Mutual Fund had conveyed to its investors that the fund may not be able to pay entire redemption amount for the Kotak FMP Series 127, which matured got April 8. Industry players estimate debt mutual funds have an exposure of Rs 6,000-7,000 crore to debt instruments of Essel Group companies. The debt papers of Essel group are secured by shares of Zee Entertainment and Dish TV. However, most of the mutual funds and lenders, who had loaned funds to the Essel group, have chosen not to sell the shares post the default. Lenders are understood to have granted the Essel Group companies a moratorium till around September 2019, by which time fund houses expect the repayments.

Sebi also mandated MF schemes to invest only in listed NCDs and the same would be implemented in a phased manner by September 2020. All fresh investments in commercial papers shall be made only in listed CPs pursuant to issuance of guidelines by Sebi in this regard.