On Wednesday, the Securities and Exchange Board of India (SEBI) said mutual funds will undertake at least 10 percent of their secondary markets trade in corporate bonds through the Request for Quote (RFQ) platform of stock exchanges from 1 October. The move will help boost liquidity and transparency on the exchanges and was based on the recommendation of the Mutual Fund Advisory Committee (MFAC).
SEBI said all transactions in corporate bonds and commercial papers wherein mutual fund is on both sides of the trade will be executed through RFQ platform of stock exchanges in one-to-one mode, and any transaction entered by a mutual fund in corporate bonds in one-to-many mode and gets executed with another mutual fund shall also be counted for the 10 percent requirement.
At the capital markets summit organized by an industry body on Wednesday, SEBI chairman Ajay Tyagi said that this move will also improve price discovery in the bond market. He also added that
The regulator has also mandated mutual funds to disclose their portfolio every 15 days. At present, funds disclose their month-end portfolios with only a few funds issuing half-monthly portfolios.
Disclosure of yields of the underlying instrument has also been mandated. Currently, mutual fund schemes typically disclose the yield of the entire portfolio and not of individual securities.
The disclosure of yields of individual bonds will increase transparency for investors who are stuck in schemes that have taken riskier bets of investing in lower-rated papers.