Post Franklin, how SEBI has ensured that such fiasco is not repeated.

ver since Franklin Templeton wound up 6 of its debt schemes and left its investors in a lurch, SEBI intensified its efforts to fix debt funds. Since then, SEBI has announced numerous steps to fix regulatory and operational loopholes to protect investors’ interest and promote growth of debt funds.

                                                                          Key points are:

  1. Firstly, it allowed mutual fund houses to list the units of mutual fund schemes that are in the process of winding up on recognized stock exchanges to provide an exit option to investors.
  1. Next, SEBI tweaked the limit on certain categories of mutual funds on a temporary basis to permit them to invest an additional 15% in government securities and treasury bills to make the portfolio more liquid.
  1. Mutual funds are now mandated to undertake at least 10% of their total secondary market trades by value in corporate bonds/commercial papers.
  1. SEBI has asked all debt schemes to disclose portfolio on fortnightly basis (as compared to the current practice of disclosure on monthly basis) within five days of every fortnight. Additionally, the portfolio disclosure should mention yields of the underlying instruments, which would give investors a better sense of the risk factor.
  1. Mutual funds are now required to disclose the details of debt and money market securities transacted in its schemes in a new prescribed format. The new format is more comprehensive and includes details such as the name and type of security, credit rating, name of the rating agency, maturity date, settlement date, interest accrued, and yield, among others.

Meanwhile, SEBI is mulling more measures which are expected to be implemented over time in consultation with the mutual fund industry. Despite these steps taken by SEBI, as an investor, you too need to exercise precaution while picking schemes for investment.

Invest in schemes that align with your risk appetite, investment objective and the time horizon to goal and assess the following factors to pick worthy schemes:

5 Key Indicators are:

  1. Detailed Credit profile of Securities held.
  2. Average Maturity & Modified Duration of the fund.
  3. Size of the Fund (Too Small a fund has limited capacity to lend to large stable players)
  4. Yield to Maturity.
  5. Interest rate Cycle.

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