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New Sebi norms: No single issuer to have over 15 per cent weight in debt ETFs

“In an event where the credit rating of an issuance falls below the investment grade or rating mandated in the index methodology, rebalancing by debt ETFs/index funds shall be done within a period of five working days,” said Sebi in a circular.

By: ENS Economic Bureau | Mumbai | Published: November 30, 2019 2:49:35 am
“There needs to clarity, whether fund houses should take investments on their book or mark down the investments, which might lower the returns,” said a debt fund manager of a leading fund house.

The Securities and Exchange Board of India (Sebi) on Friday announced norms for debt exchange traded funds and index funds. The regulator has asked asset management companies to adopt norms for debt ETFs. These norms would require AMCs to have a minimum of eight issuers, no single issuer having more than 15 per cent weight in the index and the rating of the constituents of index should be investment grade.

Market participants said these norms will bring more clarity in regard to debt ETFs and can attract investors in this segment. Sebi said debt ETFs/index funds shall replicate the index completely. But if the condition laid down above is not feasible due to non-availability of issuances of the issuer forming part of the index, the debt ETFs/index funds shall be allowed to invest in other issuances issued by the same issuer having deviation of +/- 10 per cent from the weighted average duration of issuances forming part of the index, subject to single issuer limit.

“In an event where the credit rating of an issuance falls below the investment grade or rating mandated in the index methodology, rebalancing by debt ETFs/index funds shall be done within a period of five working days,” said Sebi in a circular.

“There needs to clarity, whether fund houses should take investments on their book or mark down the investments, which might lower the returns,” said a debt fund manager of a leading fund house.

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