In the last few months, the mutual funds and debt funds have seen a lot of negative news. What are the steps the SEBI has taken in this regard?

Greater control on the mutual funds (with specific focus on debt funds and liquid funds) has been one of the main agenda items in this meeting. Here are some of the key announcements pertaining to the mutual funds from a risk management perspective.

· Firstly, SEBI has mandated that liquid funds shall have to maintain 20% of their assets in cash, government securities and T-bills and such liquid funds cannot invest in any short term deposits, debt and money market instruments that have any credit enhancement clauses or structured obligations. This was the genesis of debt fund problems.

· Sectoral caps have been reduced from 25% to 20%, which is still quite high. In addition, the amortization based valuation has been dispensed with and all valuations henceforth shall be only on mark to market basis.

· Mutual fund schemes will only be permitted to invest in listed NCDs and listed CPs. Even fresh investments in equity shares can only be made in listed shares. In all these cases, the listing conditions must have been clearly adhered to.

· There should be security cover up to 4 times (400%) of the value of the debt securities having credit enhancement clauses or structured clauses.

These are specifically intended in the light of the major issues that debt funds have faced in the recent past and should be sufficient to protect investor interests.