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SEBI tightens norms for liquid funds

These funds must hold 20% of net assets in liquid assets

As part of its attempts to strengthen the risk management framework for liquid funds, the Securities and Exchange Board of India (SEBI) has made it mandatory for such funds to hold at least 20% of its net assets in liquid assets while mandating an exit load on investors that exit within seven days of making an investment.

“Liquid funds shall hold at least 20% of their net assets in liquid assets. For this purpose, liquid assets shall include cash, government securities, T-bills and repo on government securities,” stated a SEBI circular issued on Friday.

In case the exposure in such liquid assets falls below 20% of net assets of the scheme, the fund house will first have to meet the 20% norm before making any further investments.

The capital markets watchdog has also barred liquid funds and overnight funds from parking money, pending deployment, in short-term deposits of scheduled commercial banks and also debt securities having structured obligations (SO rating) and/or credit enhancements (CE rating).

Debt securities with government guarantee, however, have been excluded from such restriction.

While imposing an exit load on investors exiting the scheme within seven days of making an investment, the regulator has directed industry body Association of Mutual Funds in India (AMFI) to prescribe a minimum exit load on a graded basis.

The new norms will be effective from April 1, 2020.

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