Review of investment norms for mutual funds for investment in Debt and Money Market Instruments
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:
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. which are used by mutual funds for hedging.
However, mutual fund schemes may invest in unlisted Non-Convertible Debentures (NCDs) not exceeding 10% of the debt portfolio of the scheme subject to the condition that such unlisted NCDs have a simple structure (i.e. with fixed and uniform coupon, fixed maturity period, without any options, fully paid up upfront, without any credit enhancements or structured obligations) and are rated and secured with coupon payment frequency on monthly basis.
The implementation of the provisions above would be subject to the following:
Timelines and investment limits:
| Timeline (As on) | 31/03/2020 | 30/06/2020 |
| Maximum investment in unlisted NCDs as % of the debt portfolio of the scheme. | 15% | 10% |
The existing investments of mutual fund schemes in unlisted debt instruments, including NCDs, may be grandfathered till maturity date (as stands as on the date of this circular) of such instruments.
All fresh investments in unlisted NCDs shall be made only in NCDs.
Extension of maturity or rolling over of existing investments in unlisted NCDs shall be subject to the prescribed limits.
For mutual fund schemes whose existing investments in unlisted NCDs are more than the threshold limit as on the timeline mentioned all fresh investments in NCDs by mutual fund schemes, shall only be in listed NCDs till they comply with the above mentioned requirements.
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