In line with the demands of the mutual fund industry body, capital markets regulator SEBI has allowed certain categories of debt funds to make additional investment in government bonds.
In a letter to the Association of Mutual Funds of India (AMFI), SEBI said that asset management companies (AMCs) can invest additional 15 percent of the AUM (assets under management) of Corporate Bond Fund, Banking and PSU Fund and Credit Risk Fund in G-Secs and T-bills.
This is optional for asset managers and is valid for the next three months only.
Corporate Bond Funds will be allowed to invest 65 percent of total assets in AA+ and above rated papers, while Credit Risk Funds are mandated to invest a minimum 50 percent of assets in AA and below rated papers. Banking and PSU Funds have to invest 65 percent of the assets in debt papers of banks and PSUs.
After Franklin Templeton shut six schemes citing liquidity crunch in the debt market, mutual fund managers are looking at risk aversion measures in the current volatility in markets due to COVID-19 ooutbreak.
To improve confidence among investors, mutual fund houses have started moving away from riskier assets investing largely in high rated issuers only.