SEBI circular dated 6th November, 2020 regarding necessity to hold liquid assets in open ended debt schemes and stress testing of open ended debt schemes.
- In order to augment the liquidity risk management framework for all open
ended debt schemes, defined in SEBI circulars SEBI/ HO/ IMD/ DF3/ CIR/ P/2017/114 dated October 6, 2017 and SEBI/ HO/IMD/DF3/CIR/P/2017/126 dated December 4, 2017, the following has been decided:
a. All open ended debt schemes (except Overnight Fund, Liquid Fund,
Gilt Fund and Gilt Fund with 10 year constant duration) shall hold at
least 10% of their net assets in liquid assets. For this purpose, ‘liquid
assets’ shall include Cash, Government Securities, T-bills and Repo
on Government Securities.
b. The liquid assets specified at para 1(a) above shall not be included
for determining the scheme characteristics of the open ended debt
schemes as specified in SEBI circulars SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017 and SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 4, 2017.
c. In case, the exposure in such liquid assets / securities falls below the
threshold mandated at para 1(a) above, the Asset Management
Companies (AMCs) shall ensure compliance with the above
requirement before making any further investments.
2. SEBI vide circular No. CIR/IMD/DF/03/2015 dated April 30, 2015 mandated Stress Testing of Liquid Funds and Money Market Fund schemes. Based
on the recommendations of Mutual Fund Advisory Committee (MFAC), it is
decided to mandate all open ended debt schemes (except overnight
scheme) to conduct stress testing. Further, on similar lines of Para 2 of
aforementioned circular dated April 30, 2015, AMC shall stipulate the
guidelines to carry out stress testing for the aforementioned debt schemes.
A committee has been set up to deliberate on the subject of the circular and
give its recommendations. The recommendations will be evaluated and
based on the same the norms regarding holding of liquid assets and
methodology of stress testing may undergo change.
The provisions at para 1 above shall be effective from February 01, 2021
and the provision at para 2 above shall be effective from December 01, 2020.