Sebi Asks Debt MF Schemes To Hold 10% Liquid Assets; Mandates Stress Testing

With an aim to ensure sufficient liquidity, markets regulator Sebi on Friday made it mandatory for debt mutual fund schemes to hold at least 10 per cent of their net assets in liquid assets.

Besides, it also mandated debt schemes to conduct stress testing.

The new rules are aimed at improving risk management and ensuring sufficient liquidity.

"All open ended debt schemes (except overnight funds, liquid fund, gilt fund and gilt funds with 10-year constant duration) shall hold at least 10 per cent of their net assets in liquid assets," Sebi said in a circular.

In case the exposure in such liquid assets falls below the threshold mandated, the asset management companies (AMCs) will have to ensure compliance with the requirement before making any further investment.

Liquid assets include cash, government securities, treasury bills and repo on government securities.

Currently, liquid schemes are required to hold a minimum 20 per cent in liquid assets. However, other debt oriented schemes have no such requirement.

"It is decided to mandate all open ended debt schemes (except overnight schemes) to conduct stress testing," the circular said.

Currently, stress testing is mandated for liquid funds and money market fund category.

Sebi further said a committee has been set up to deliberate on stress testing and give its recommendations.

The recommendations will be evaluated and based on the same, the norms regarding holding of liquid assets and methodology of stress testing may undergo change.

The guidelines on holding certain percentages in liquid assets would come into effect from February 1, 2021, and those on stress testing will become applicable from December 1, 2020, it said.