The Securities and Change Board of India (SEBI) has prompt that asset administration corporations (AMCs) ought to hold a buffer of liquidity, particularly for in a single day funds and liquid funds, to take care of stress conditions.
Talking at a mutual fund convention, SEBI whole-time member G. Mahalingam stated that whereas the regulator had nudged the business to keep up a minimal buffer, fund homes ought to gauge the liquidity strain in a stress scenario and construct a buffer throughout maturities.
“What I would wish is that the industry itself is going to operate on a cycle where it actually is able to gauge what is going to be the liquidity demands on stress scenario, and it is able to build up the liquidity buffer by building up a ladder of liquidity maturities,” Mr. Mahalingam stated on the CII Mutual Fund Summit.
This assumes significance as there have been a couple of cases prior to now whereby corporates defaulted on their fee obligations and fund homes needed to take successful and had been inundated with redemption requests.
In September 2019, the capital markets watchdog had made it necessary for liquid funds to speculate 20% in liquid property.
The SEBI member additionally highlighted the character of credit score funds and stated that traders wanted to be advised that there was an inherent threat concerned within the product.
“I think it is the duty of the industry and the distributors to bring forth clearly this risk into perspective so that the retail investor does take a calculated call,” Mr. Mahalingam stated.
Mr. Mahalingam, who was earlier with the Reserve Financial institution of India (RBI), additionally made it clear that the capital markets regulator didn’t choose fund homes to put money into structured merchandise.
“It is better for the industry to keep a distance away from structured obligations, which really don’t make things very clear,” he stated.
“I think it is for the industry to take a clear call on what kind of investment products that they would get in, which would actually give them a reasonable return, a good liquidity, and at the same time as safe risk proposition,” he added.
On a special notice, he stated that fund homes who’re an essential class of institutional traders ought to play a extra proactive position when it comes to enhancing the company governance ranges in corporations the place they held stake.
He highlighted that mutual funds abstained on about 12% of the corporate resolutions and stated that over a time period this quantity needs to be introduced down as a lot as doable.