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SEBI Rejig Norms For Debt Mutual Funds - Major Changes Introduced


The Securities and Exchange Board of India has issued new guidelines for debt funds that are passively managed. Last week, According to SEBI, Debt ETFs/Index Funds could be based on indices that include Corporate Debt Securities, Government Securities, T-Bills, and/or State Development Loans (SDLs) (G-sec indices), or a mix of the three.


The constituents of the index in debt index funds should have enough liquidity and diversification at the issuer level, according to the new standards. The index's constituents will also be reassessed on a regular basis.


The Securities and Exchange Board of India (Sebi) has also mandated that no single group of securities should account for more than 25% of the index's weight (excluding securities issued by PSUs, Public Financial Institutions (PFIs), and Public Sector Banks (PSBs)). In addition, no single sector may account for more than 25% of the index's weight (excluding G-sec, t-bills, SDLs and AAA rated securities issued by PSUs, PFIs and PSBs). This provision, however, does not apply to sectoral or thematic debt indices.



Sebi has asked AMCs to make sure that the updated constituents of indices and methodology for all of their Debt ETFs/ Index Funds are always published on their websites. Furthermore, since the commencement of the schemes, historical data on the constituents of the indices will be made available on their website. To begin, AMFI has been asked to publish a list of debt indices in preparation for the launch of debt ETFs/Index Funds. AMFI is required to publish the list within one month after the circular's publication.


In the case of Corporate Debt ETF/Index Funds, Sebi has stated that investments in securities of issuers accounting for at least 60% of the index's weight comprise at least 80% of the ETF/Index Fund's net asset value (NAV). The Securities and Exchange Board of India (Sebi) has also stated that the securities of non-index issuers shall not exceed 20% of the ETF/ Index Fund's NAV at any time.

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