MUMBAI: Sebi approved the creation of a Rs 33,000 crore corpus on Wednesday in an effort to protect investors from external upheaval in the debt markets in the event that fixed-income mutual funds encounter difficulties as a result of market turbulence.
According to Sebi Chairman Madhabi Puri Buch, the fund would have a sovereign guarantee, and Sebi can only activate the backstop facility when a debt fund encounters problems brought on by systemic market issues rather than by poor management or bad investment choices.
Franklin Templeton MF closed six debt schemes in 2020 and attributed the closures to market unrest. Investors in these funds were fully repaid by the fund company after more than two years. Industry insiders claimed that the government-mandated fund is an effort to prevent similar occurrences in the future.
The fund will be run by SBI Mutual Fund and have an alternative investment fund structure. According to the Sebi chairman, the government will contribute Rs 30,000 crore of the total corpus, while the remaining Rs 3,000 crore will come from the MF sector.
Private equity funds were among the companies that Sebi permitted to float a fund house. Just a select few organisations, including banks, NBFCs, and corporations are now able to float an asset management firm to form mutual funds. The new legislation, which would encourage competition, will allow fresh firms to start a fund house.
The agency added that it would unveil a fresh set of guidelines for companies launching passive funds. According to the Sebi chairman, the primary goal of the current mutual fund regulations is to control actively managed funds. Buch added that after speaking with industry leaders, it became clear that passive funds require far less regulation. Also, Sebi implemented rules for index service providers “with the purpose of increasing transparency,” according to a circular.