The Securities and Exchange Board of India (SEBI) has issued a new circular, dated September 6, 2023, that provides clarification on mutual fund investments in the Corporate Debt Market Development Fund (CDMDF). The circular responds to a previous request from the Association of Mutual Funds in India (AMFI) regarding asset allocation limits. This article aims to provide a detailed analysis of the implications of this circular for Asset Management Companies (AMCs), Trustee Companies, and mutual fund investors.
Background: SEBI’s new circular is a follow-up to a previous one dated July 27, 2023, which discussed the investment of Mutual Fund Schemes and AMCs in units of CDMDF. AMFI had raised a query on how these investments should be accounted for when calculating asset allocation limits for mutual funds.
Key Takeaways
1. Asset Allocation Clarification: The circular explicitly states that investments in units of CDMDF shall not be considered when calculating the asset allocation limits for mutual funds. This rule aligns with Part IV of Chapter 2 on ‘Categorization and Rationalization of Mutual Fund Schemes’ of the Master Circular for Mutual Funds dated May 19, 2023.
2. Immediate Effect: The provisions outlined in the circular come into immediate effect, mandating AMCs and other related parties to adjust their asset allocation calculations accordingly.
3. Regulatory Authority: The circular is issued under the powers granted to SEBI by Section 11 (1) of the Securities and Exchange Board of India Act, 1992, in conjunction with regulations 77 of SEBI (Mutual Funds) Regulations, 1996. The intention behind the circular is to protect investors and promote the securities market.
Implications for Stakeholders
1. AMCs and Trustee Companies: They will need to adjust their asset allocation models to exclude CDMDF investments. This can affect the risk profile of certain mutual fund schemes.
2. Investors: Exclusion of CDMDF units from asset allocation can potentially make mutual funds more risk-averse, depending on the nature of the CDMDF.
3. Regulatory Compliance: Firms must ensure they are compliant with this new rule to avoid regulatory repercussions.
Conclusion: The new SEBI circular clears the ambiguity regarding the impact of mutual fund investments in CDMDF units on asset allocation limits. This provides a clearer path for AMCs and Trustee Companies to ensure their mutual funds are compliant with SEBI’s regulations. For investors, the immediate implication is a possible recalibration of risk levels in their mutual fund investments.
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Securities and Exchange Board of India
Circular No. SEBI/HO/IMD/PoD2/P/CIR/2023/152 Dated: September 06, 2023
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Trustee Company of CDMDF/
Association of Mutual Funds in India (AMFI)
Sir / Madam,
Subject: Clarification regarding investment of Mutual Fund schemes in units of Corporate Debt Market Development Fund
1. This has reference to SEBI Circular SEBI/HO/IMD/PoD2/P/CIR/2023/129 dated July 27, 2023 on Investment by Mutual Fund Schemes and AMCs in units of Corporate Debt Market Development Fund (“CDMDF”).
2. In this context, AMFI has requested that for calculation of asset allocation limits, the base may be considered as net asset excluding of investment in units of CDMDF.
3. It is therefore clarified that for calculation of asset allocation limits of mutual fund schemes in terms of Part IV of Chapter 2 on ‘Categorization and Rationalization of Mutual Fund Schemes’ of Master Circular for Mutual Funds dated May 19, 2023, investment in units of CDMDF shall be excluded from base of net assets.
4. The provisions of this circular shall come into force with immediate effect.
5. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of regulations 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interest of investors in securities and to promote the development of, and to regulate the securities market.
6. This Circular is available at www.sebi.gov.in under the link “Legal > Circulars”.
Yours faithfully,
Lakshaya Chawla
Deputy General Manager
Tel no.: 022-26449369
Email: lakshayac@sebi.gov.in
