The Securities and Exchange Board of India on 18th June 2021 has modified the norms on investment and disclosure by Mutual Funds in Derivatives.
Based on the modified norms, the Mutual Funds may enter into plain vanilla Interest Rate Swaps (IRS) for hedging purposes. The value of the notional principal in such cases must not exceed the value of respective existing assets being hedged by the scheme.
In case of participation in IRS is through over-the-counter transactions, the counter party has to be an entity recognized as a market maker by RBI.
Further the exposure to a single counterparty in such transactions should not exceed 10% of the net assets of the scheme.
However, if mutual funds are transacting in IRS through an electronic trading platform offered by the Clearing Corporation of India Ltd. (CCIL) and CCIL is the central counterparty for such transactions guaranteeing settlement, the single counterparty limit of 10% shall not be applicable.
