Vet value of debt papers, MFs told

Sebi asks six fund houses to refile their offer papers

In a capital protection scheme, fund houses usually invest a hefty chunk (say 80 per cent) of investor money in debt papers, while parking the remaining 20 per cent with equities.

Sebi has asked the concerned Mutual Funds (MF) to disclose in the offer documents of how they would protect the investors’ money in these schemes, sources said, but refused to identify these fund houses.

Future offers would also have to abide by this Sebi directive, the sources said, adding that the market regulator wants the fund houses to invest in debt papers which have got high grades from rating agencies.

This is to maximise returns of the fund from fixed- income instruments. Equity investment is done by MFs to increase the capital base of the fund.

Sebi wanted to ensure that the capital of the investor is protected and that the fund house does not give negative returns. “Sebi wanted to introduce a stringent capital guarantee provision for such schemes of MFs. They want to ensure that even if the fund house is not able to give positive returns, the money invested should be back,”  Value Research CEO Dhirendra Kumar said.

Currently new fund offers of two fund houses— JP Morgan Asset Management and Sundaram— are open for subscription. Investors to these schemes seek returns and minimise risk of capital loss by investing in a portfolio of fixed income securities.

Diversification of portfolios between fixed income and equities spreads risk across various asset classes and if an investor stays invested for longer term the risk arising out of volatility in the market is reduced, said a fund manager at a mutual fund.