The Economic Times reported that SEBI is planning to reduce the exposure of Mutual Funds towards individual companies, corporate groups and sectors. According to the newspaper, if implemented, a fund’s exposure will be restricted to a maximum of 25% in a particular sector, down from 30% now. Any scheme that invests in a corporate group with more than 1 company might be restrained from investing more than 20% of its AUM into companies of the same group. Funds could be limited to investing maximum 10% of securities of a single issuer, down from 15% now.
This is triggered by the recent fiasco caused by Amtek Auto’s down fall. 2 JP Morgan funds saw exodus of investors leading to a crisis after the Amtek Auto’s debt instruments were downgraded by rating agencies. The funds had high exposure to these securities.
If SEBI implements the proposed suggestions, it will only increase the confidence of the investors and will be perceived as a move towards reducing the unsystematic risk.