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Sebi sets up Rs 33k-cr corpus for debt MFs hit by market turmoil

Mumbai, Mar 30, 2023

In a bid to shield investors from external turmoil in debt markets, Sebi on Wednesday gave its nod to set up a Rs 33,000-crore corpus in case fixed-income mutual funds are in trouble due to market dislocations.

The fund will have a sovereign guarantee and Sebi can trigger the backstop facility only when a debt fund faces difficulties due to systemic trouble in the market, and not because of mismanagement or poor investment decisions, Sebi chairman Madhabi Puri Buch said after the board meeting.

In 2020, Franklin Templeton MF shut down six debt schemes, blaming it on market turmoil. It took the fund house over two years to fully repay investors in these funds. Industry players said the government-mandated fund is a move to avoid repeat of such instances.

The fund will be structured as an alternate investment fund and will be managed by SBI Mutual Fund. Of the total corpus, Rs 30,000 crore will be contributed by the government, while the balance Rs 3,000 crore will come from the MF industry, Sebi chairman said.

Sebi also allowed various types of entities, including private equity funds to float a fund house. Currently a limited number of entities like banks, non-banking financial companies (NBFCs) and corporates can float an asset management company to launch mutual funds. Under the new regulation, which will promote competition, newer entities will be able to launch a fund house.

The regulator also said that it would introduce a new set of rules for entities to launch passive funds. The current rules for mutual funds are mostly with the objective of regulating active funds, Sebi chairman said. However, during conversations with industry representatives, it was realised that passive funds need much lesser regulation, Buch said. Sebi also brought in regulations for index service providers "with the objective of fostering transparency", a circular said.

[The Times of India]

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