SEBI caps MF Exposure to Money Market & allows FIIs, funds to invest in IDRs


April 13, 2009:

Mutual Fund Exposure to Money Market Instruments of an Issuer

In order to mitigate concentration risk, The Securities and Exchange Board of India (SEBI) has decided to amend the Seventh Schedule of SEBI (Mutual Fund) Regulations to provide that no mutual fund scheme shall invest more than 30% of its net assets in money market instruments of an issuer.

The schemes may, however, continue to invest up to 15% or 20% of net assets, as the case may be, in other investment grade debt instruments of an issuer as already provided in the Regulations. These limits will not cover investments in government securities, T-Bills and Collateralized Borrowing and Lending Obligations (CBLO).

IDR (Indian Depository Receipts)

SEBI Board has approved proposals to enable:

(a) mutual funds and FIIs to invest in IDRs subject to FEMA

(b) demat holding of IDRs

(c) issue of depository receipts by custodians on behalf of issuers.

This move can widen the investor base and increase liquidity for IDRs that will be issued in India. Initially when IDRs were introduced, the government allowed only Indian citizens to invest. Like American Depository Receipts (ADRs), where Indian companies raise money from overseas market, IDRs would enable foreign firms to raise money from the Indian markets. ADRs or IDRs are derivative instruments and derive their value from the shares deposited with the custodian.




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