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The comment comes in opposition to the backdrop of some mutual fund homes giving moratorium to debtors in latest months on the traces of banks.
Addressing members of {industry} physique Amfi (Association of Mutual Funds in India) Tyagi stated, debt mutual funds should keep in mind always that there’s a distinction between ‘investing’ and ‘lending’
“Mutual funds are not banks and shouldn’t attempt to behave like one,” he added.
Unlike banks there are neither capital adequacy necessities for mutual funds nor have they got the ‘lender of final resort’ consolation as banks have from RBI, the Sebi chief stated.
The true reflection of their portfolio within the web asset worth (NAV) on day by day foundation is the cornerstone of transparency and traders’ belief, he added.
He additional stated there’s a want to obviously attempt extra to make mutual funds common past the highest 50 cities within the nation.
The mutual fund {industry} has been performing properly with web optimistic influx of cash in mutual funds in every of earlier 5 years, averaging at ₹1.89 lakh crore annually.
The determine for the present monetary 12 months until August 2020 is ₹1.99 lakh crore, he added.
He identified that attraction of mutual fund schemes has been skewed in direction of the city centres.
To improve penetration of mutual funds throughout prime cities, Sebi has began incentivising mutual fund investments past prime 15 cities and subsequently, prime 30 cities.
However, regardless of the measures taken by the regulator, the share of those prime 15 / 30 cities within the {industry}’s complete property underneath administration (AUM) has hovered round simply 15-17 per cent over the past 5 years, Tyagi stated.
“We need to strive more to make mutual funds popular in areas beyond top 30 cities,” he added.
The markets watchdog can be working in direction of rising liquidity in company bonds, whereby mutual funds are greatest traders.
Mutual funds as institutional traders are one of many largest holders of company bonds and always see inflows and outflows to/from schemes.
However, underneath many situations when there are industry-wide traits of subscriptions or redemptions, it turns into troublesome for mutual funds to get a sizeable counterparty to cater to their shopping for or promoting wants.
“Thus, there is a pressing need to increase liquidity in the corporate bond market to ensure smooth functioning of the debt mutual funds,” Tyagi famous.
Apart from mandating mutual funds to do a minimal share of their secondary market trades in company bonds on the RFQ platform of inventory exchanges, Sebi stated it’s pursuing a large number of measures to not solely improve liquidity in secondary markets but additionally to allow higher issuances of paper rated beneath AAA.
The measures embrace repo in company bonds and backstop facility.
Tyagi stated the regulator is deliberating on having a restricted goal central clearing company for assured settlement of tri-party repo trades in all funding grade company bonds, together with these beneath AAA rated, to spice up repo buying and selling in company bonds.
“As major holders of corporate bonds, the mutual funds, who regularly have buying/selling needs, would be one of the biggest beneficiaries of a liquid market. Issuers will also be significant beneficiaries of a liquid and stable market in terms of lower borrowing costs,” Tyagi stated.
In addition, Sebi is analyzing the establishing of a backstop facility in session with numerous stakeholders.
An entity which might commerce in comparatively illiquid funding grade company bonds and be available in occasions of stress to purchase such bonds from numerous market individuals within the secondary market might instill higher confidence of market individuals in company bonds, particularly in beneath AAA funding grade bonds, he added.
Ajit Menon, CEO, PGIM India Mutual Fund stated Sebi’s endeavour to deepen the company bond market by leveraging expertise and Request For Quote ( RFQ ) system mixed with an upcoming committee that may work in direction of creating an ecosystem for a company repo market will probably be very useful to all stakeholders.
“This will help in increasing liquidity for below AAA bonds and reduce systemic risks for Indian investors especially in stressful times,” he added.
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