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January 12, 2016

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1.As part of its attempts to make mutual funds reduce their exposure to one issuer or a sector in the debt schemes, the capital markets regulator Securities and Exchange Board of India (SEBI) has lowered the exposure cap for such investments by mutual funds.

2.The SEBI Board has decided to amend the mutual fund regulations so that single issuer limit is reduced to 10 per cent of the net asset value (NAV) of the scheme, which can be increased to 12 per cent of the NAV but only after an approval from the trustees. The sector-specific exposure limit has also been reduced from the current 30 per cent of the NAV to 25 per cent.

3.According to a statement from SEBI, the new norms would mitigate risks arising on account of high levels of exposure in the wake of events pertaining to credit downgrades and put mutual funds in a better position to handle adverse credit events.

4.In August 2015, a sudden downgrade in the credit rating of Amtek Auto Ltd led to a fund house taking a massive hit on its NAV and freezing all kinds of redemption for a brief period of time.