SEBI caps MFs' debt investments, relaxes ADR norms

The Securities and Exchange Board of India (SEBI) has imposed a ceiling of 30 per cent on a mutual fund's investment in debt instruments of any single entity so that asset managers can diversify the risks. The market regulator also allowed mutual funds and foreign institutional investors to invest in IDRs subject to the Foreign Exchange Management Act (FEMA),

''In order to mitigate concentration risk, the board decided to amend the Seventh Schedule of SEBI (Mutual Fund) Regulations to provide that no mutual fund scheme shall invest more than 30 per cent of its net assets in money market instruments of an issuer,'' SEBI said in a release after a board meeting today.

''The schemes may, however, continue to invest up to 15 per cent or 20 per cent of net assets, as the case may be, in other investment grade debt instruments of an issuer as already provided in the regulations.  These limits will not cover investments in government securities, T-bills and collateralised borrowing and lending obligations (CBLO),'' it added.  

The market regulator also approved proposals to enable mutual funds and foreign institutional investors (FIIs) to invest in IDRs subject to Foreign Exchange Management Act (FEMA), demat holding of IDRs and issue of depository receipts by custodians on behalf of issuers.

These limits will not cover investments in government securities, T-Bills and collateralized borrowing and lending obligations (CBLO), it said.

Besides, SEBI allowed proposals to enable mutual funds and foreign institutional investors to invest in IDRs subject to Foreign Exchange Management Act (FEMA).

At the same time, it also approved demat holding of IDRs and issue of depository receipts by custodians on behalf of issuers.

IDRs are similar to American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) through which Indian firms raise money from overseas capital markets.

Under the revised guidelines, a foreign company wanting to raise money in India through IDRs should have a continuous trading record on a stock exchange in the parent country for at least three immediately preceding years.

This condition has, however, been now relaxed from five years to three years. The net worth and market capitalisation ceilings will be the eligibility conditions instead of net worth and turnover based ceilings.