The Market Regulator Securities Exchange Board of India (SEBI) has taken a big decision to protect the money of Mutual Fund Investors. SEBI has allowed mutual funds to invest in unlisted non-convertible debentures (NCDs). This investment can be only 10% of the debt portfolio of a scheme. SEBI has said that from 31 March 2020 unlisted NCDs can be made in maximum 15 percent of the debt portfolio of the scheme. The market regulator has said that from June 2020, its investment limit will be 10 percent.
Interest on investment – This investment can be done in unlisted NCDs which will have a simple structure, secure rating and monthly interest will be payable. A simple framework would mean an NCD that has a fixed and uniform interest rate, a fixed maturity period, and full payups at the beginning without credit expansion.
It states that investments made in any unlisted debt instrument of mutual funds including NCDs will continue till the maturity of that financial instrument. The objective of these measures is to increase transparency and disclosure in mutual funds investment in various financial instruments of debt and currency markets.
Allowing 10% investment in NCDs- SEBI said in a notification that all investments in equity shares and all instruments related to equity will be made by the mutual fund scheme only if the securities are listed or going to be listed on the stock market. However, SEBI has allowed mutual funds to invest up to 10 per cent of the scheme’s debt portfolio in unlisted non-convertible debentures (NCDs).
The regulator has stated in one of its notes that mutual fund schemes will not invest in any debt instruments unlisted, including commercial papers except government securities and other money market instruments. However, unlisted non-convertible debentures can invest up to 10% of the debt portfolio of the scheme.