SEBI allows Mutual Funds to create segregated portfolio for unrated debt

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The Securities Exchange Board of India(SEBI) in its circular dated 7th November 2019 has allowed Mutual Funds to create segregated portfolios for unrated debt or money market instruments of an issuer that does not have any outstanding rated debt or money market instruments by modifying its earlier circular dated December 28, 2019
The creation of a segregated portfolio for unrated debts is subject to certain conditions as mentioned below:

  • Segregated portfolio of such unrated debt or money market instruments may be created only in case of actual default of either the interest or principal amount. For the purpose of this circular ‘actual default’ by the issuer of such instruments shall be considered for creation of segregated portfolio.
  • Asset Management companies will inform AMFI (Association of Mutual Funds of India) immediately about the actual default by the issuer. Upon being informed about the default, AMFI shall immediately inform the same to all AMC (Asstet Management Company), and pursuant to this, AMCs may segregate the portfolio of debt or money market instruments of the said issuer, in terms of SEBI circular dated December 28, 2018.

SEBI has further modified Para C-3 of the conditions to be followed by mutual fund while creating a segregated portfolio as under:

Creation of segregated portfolio shall be optional and at the discretion of the AMC. It  should  be  created  only  if  the  Scheme  Information  Document (SID)  of  the  scheme  has  provisions  for  segregated  portfolio  with  adequate disclosures.  All  new  schemes  to  be  launched  after the  date  of  this  circular shall  have  the  enabling  provisions  included  in  the  SID  for  creation  of segregated portfolio

Click here to read the Circular

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