Written by Talent KAS

Related Topics: Debt Mutual Funds, SEBI


As part of its attempts to strengthen the risk management framework for liquid funds, the Securities and Exchange Board of India (SEBI) has made it mandatory for such funds to hold at least 20% of its net assets in liquid assets while mandating an exit load on investors that exit within seven days of making an investment.

What are the New Norms?

  • Liquid funds shall hold at least 20% of their net assets in liquid assets. For this purpose, liquid assets shall include cash, government securities, T-bills and repo on government securities.
  • When the exposure in such liquid assets falls below 20% of net assets of the scheme, the fund house will first have to meet the 20% norm before making any further investments.
  • Liquid funds and overnight funds have been barred from parking money, pending deployment, in short-term deposits of scheduled commercial banks and also debt securities having structured obligations (SO rating) and/or credit enhancements (CE rating).
  • Debt securities with government guarantee have been excluded from such restriction.
  • While imposing an exit load on investors exiting the scheme within seven days of making an investment, SBI has directed industry body Association of Mutual Funds in India (AMFI) to prescribe a minimum exit load on a graded basis.
  • The new norms will be effective from April 1, 2020.

What are Liquid Funds?

  • Liquid funds are a category of debt mutual funds which invest in very short-term market instruments like treasury bills, government securities and call money.
  • According to SEBI’s definition, liquid funds can invest in debt and money market securities with maturity of up to 91 days only.
  • Assets invested are not tied up for a long time as liquid funds do not have a lock-in period.

[Source: The Hindu]


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