The Securities and Exchange Board of India (Sebi) has unveiled new rules on mutual funds with liquid schemes and tightened the disclosure norms for pledged shares.
CNBC-TV18 spoke with Mahendra Jajoo, Head Fixed Income, Mirae Asset Global Investments and Abhimanyu Bhattacharya, Partner, Khaitan & Company, about the development.
“The guidelines that Sebi issued yesterday are a fairly comprehensive review of debt MFs and the debt MFs have been in news for the past six months for all different reasons and structured products had been one of the key parts of that discussions. To that extent they have addressed the problem,” said Jajoo.
According to Jajoo, "One of the key features of the liquid fund was the ability to invest on daily basis and redeem on a daily basis whereas the bank deposits right now have a holding period of 7 days. One of the key advantages of the liquid fund has been diluted because now the redemptions can happen before seven days only with certain exit load but those norms are still evolving. “I think it’s a reasonable handicap in the immediate aftermath that the liquid funds will face and therefore there will some shift to overnight funds or to bank fixed deposits but now the liquidity funds will give a transparent well-risk managed, a liquid product where people can feel more comfortable and confident."
"Going forward, we will see a change in the entire ecosystem around liquid funds, which will be much better than now but maybe a different set of investors,” said Jajoo.
Talking about standstill agreements, Bhattacharya said, “The Chairman in the presser after the Board meeting clearly said that Mutual Funds are investors and are not banks and so to that extent standstill agreements will not hold.”
“Sebi also took a decision to expand the definition on encumbrance under our Takeover Code and that essentially now covers any restriction on the free and marketable title to shares by whatever name called and they have expanded to say whether executed directly or indirectly and it already includes the classic encumbrance such as pledge, lien, negative lien, non-disposal undertaking (NDU) which we typically see,” said Bhattacharya.