The Securities and Exchange Board of India will bring in norms that will restrict investments by mutual funds in rated debt instruments.

The new norms are aimed at preventing excessive focus by any mutual fund in a single company. SEBI’s proposal comes in the wake of Amtek Auto defaulting on ₹190-crore worth of bonds held by funds of JP Morgan.

“We have advised mutual funds that instead of relying completely on credit rating agencies, they must have their own system of risk assessment.

“They must have their own research on various investments and also, we are likely to come out with more guidelines on sectoral as well as company-specific exposures,” said SEBI Chairman UK Sinha while delivering a key note address at an industry event.

Investment managers of fixed income funds say that while diversifying risk is a good idea, SEBI must be careful on how it imposes limits. For instance, over 70 per cent of debt issuances come from the financial services sector, mostly from public sector institutions, banks, and housing finance companies, and defaults from this sector are rare.

By imposing a limit on how much exposure a fund can take in a particular sector, funds will be forced to consider other less creditworthy sectors to comply with these limits.

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