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Mutual Funds

SEBI Ringfences Fixed Income Funds


At Value Research: SEBI ups the ante on Fixed Income Transparency

In a circular issued earlier today, markets regulator SEBI has said that all fixed-income funds must reveal each and every transaction publically by posting it on their website.

As per the format given in the circular, the following items shall have to be reported for each trade: Name of the Security, ISIN, Fund House, Scheme Name, Maturity Date, Residual days, Settlement type, Trade Date, Valuation Date, Settlement Date, Quantity traded, Value of the Trade, Price at which valued, Yield at which valued, Type of trade (Inter-scheme / market trade / off market trade).

The original SEBI circular also allows the data a 1 month time lag, so it’s not necessarily tradeable information. I’m not sure why this kind of regulation has come in, but it might just be that funds are churning the portfolio around to make it look good for their month-end revelations of portfolio. A way to track this will be to have full access to all trades. Note that this is only for fixed-income funds, not for equity funds. (But I don’t know the real reason)

The second part of that circular is that that for ultra-short-term investments funds earlier did not require to mark-to-market holdings that were less than 91 days left to maturity. That has now been changed to 60 days, because – I think – the debt market is seeing serious turbulence at the sub-91 day period, where yields of government T-Bills have crossed 9%, and the CP/CD market (where the liquid and ultra short term funds invest) is now going to 10%+. A higher yield = lower price, but the securities aren’t marked to market at <91 days so they don’t have to show the loss. But if enough fund holders sell, the liquidation of the holdings will be at market value, which is lower than the straight-line-amortised price calculation, which creates a risk that the fund will go into distress. Good call by SEBI, which is going towards full mark-to-market in a year.


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