The Securities and Exchange Board of India (Sebi) has asked fund managers to provide extensive details on corporate debt investments, amid growing concern over mutual fund investors’ exposure to distressed corporate bonds.
The Association of Mutual Funds Industry (AMFI), the self-regulatory organisation (SRO) of the mutual industry, is likely to discuss about the issue at its board meeting here on Wednesday.
Sebi has asked funds for details that include the rationale for the purchase, and assessments of a credit downgrade risk. Sebi is also likely to revise guidelines on mark-to-market valuations for funds, sources said. Some fund houses are keen to take a collective stance and they want AMFI to take up the matter with Sebi to arrive at a common regulatory mechanism on investment in corporate bonds. However, there is no consensus as some funds want the affected fund houses to resolve the matter individually rather than presenting it as an industry-wide problem, sources said.
The issue caught regulators’ attention after a smaller fund house JP Morgan Mutual Fund got into troubles due to its exposure to debt securities of debt-laden Amtek Auto, while a few other mutual funds have also faced similar problems with regard to corporate bonds of a few other distressed firms.
Sebi is already looking into the issue of some listed companies failing to make proper disclosures on negative developments regarding their credit ratings. Besides, Amtek’s listed subsidiary Castex Technologies too is under the lens amid share price rigging allegations.
Some mutual fund houses are also being probed to ascertain whether they failed to furnish information to investors about their exposure to such debt crisis-hit companies. JP Morgan Mutual Fund recently restricted redemptions from two of its debt schemes —Short Term Income Fund and India Treasury Fund.