SEBI turns hero for investors, Trump three-way fist bumps with Shinzo and Modi and more
Monsoon seems to have brought along cheer on many fronts – right from pleasant weather to pleasant news for investors. Here’s what you must know to reassure yourself that your investments are headed in the right direction.
SEBI wears the cape to save investors once again
While Indian investors have only recently realized the ugly side of credit risk, SEBI has stepped in to ensure that investors are protected. SEBI’s recent circular tightens regulations for mutual funds, especially for the debt funds to offer insulation against the increasing probability of further markdowns on already sub-rated instruments.
Here are the most notable measures that will augur well for mutual fund investors.
1. A liquid fund should hold a minimum of 20% assets in cash, gilts
Impact: Cash is the most liquid, will help liquid funds meet the redemption pressure but the 20% floor may dent returns given the lower risk premium.
2. Exit load on liquid funds if redeemed within 7 days
Impact: Liquid funds may lose its charm among corporates and HNIs. Overnight funds may get more attractive soon as they don’t carry any exit load.
3. Cap on funds’ exposure to individual sectors, debt issuers, structured instruments, unlisted securities and loan against securities
Impact: Exposure to a single sector to be brought down from 25% to 20%. Additional 15% for HFC brought down to 10% which means HFC + NBFC cannot be more than 30% from current 40%. This will help insulate funds against concentration towards high-risk sectors.
4. The regulator has also mandated mutual funds to have a security cover of 4 times of their investment in debt having Loan against Shares (LAS)
Impact: These measures will restrict mutual funds from taking on unwarranted risk to chasing yields and will lead to a healthier portfolio. This also helps circumvent high-risk situations wherein the papers are collateralised by promoters’ shareholding
Summit over Sushi – G20 nations meet in Japan to resolve trade issues
The G20 summit is happening in Japan. Prime Minister (Japan) Shinzo Abe has appealed for unity among trade leaders and insisted on creating a globally healthy environment for free trade. President Trump seems to have aligned his heart with the appeal and has stated that he may not levy any further tariff on ~ USD 350 bn worth of goods as a response to China’s assurance to support the U.S. markets, especially the agriculture-linked sectors.
This comes in as great news for both economies and every other global economy having a trade relation with either of them. The successful materialisation of similar negotiations may lend stability to global markets and bolster robust growth.
What’s your next move?
With SEBI taking proactive initiatives to protect investors’ interests and the largest looming global concerns moving towards resolution, now seems a good time to invest in dynamic asset allocation which utilises the flexibility to manage the allocations between equity and debt in line with developing market situations.
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P.S. Let us know if you’ve been sitting on the fence for too long and need a portfolio management expert to guide you towards your financial goals.