To combat the recent concerns related to credit and liquidity risk, the market regulator SEBI has proposed a host of changes in its valuation and investment norms:
1. Funds are required to mark to market all the products that have a maturity of more than 30 days.
2. Also, for the purpose of amortization, the threshold has been changed from the earlier 60 days to 30 days, which implies that now even securities with maturity term of 30 days will be allowed to be priced basis the market value. In 2013, the time for valuing bonds as per amortization was reduced to funds with maturity of up to 60 days.
3. Single sector investment now reduced to 20% for liquid funds in contrast to the previous cap of 25%.
4. For immediate redemption, cash holdings should be maintained by keeping at least a fifth of the fund's corpus or assets.
5. Also, liquid and overnight funds can no longer in debt investments ranging from short-term deposits, debt and money market instruments having structured obligation.
Retail investors and liquid funds:
As these funds offer, a great deal of higher return as well as with high liquidity in comparison to other debt instruments and savings account, investors lapped up the product. And for them the period of investment ranged between one day to 6-months and for meeting short term goals like, paying high-ticket insurance premiums and even saving for vacations.