CIRCULAR
SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2022/164 November 29, 2022
To,
All Mutual Funds/
All Asset Management Companies (AMCs)/
All Trustee Companies/ Board of Trustees of Mutual Funds/
All Association of Mutual Funds in India (AMFI)
Dear Sir / Madam,
Sub: Introduction of credit risk based single issuer limit for investment by
mutual fund schemes in debt and money market instruments
1. As per Regulation 44(1) read with clause 1 of Seventh Schedule of SEBI (Mutual
Funds) Regulations, 1996 (“MF Regulation”), a mutual fund scheme shall not
invest more than 10% of its NAV in debt instruments, issued by a single issuer,
comprising money market securities and non-money market securities rated
investment grade or above by a Credit Rating Agency (CRA). This overall
investment limit may be extended to 12% of the NAV of the scheme with the
prior approval of the Board of Trustees and Board of Directors of the Asset
Management Company.
2. Vide Circular dated May 23, 2022, on “Development of Passive Funds”, SEBI
introduced credit risk based single issuer limits for debt ETFs/ Index Funds in
order to effectively manage the risk associated with such investments.
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3. In order to avoid inconsistency in investment by mutual funds in debt instruments
of an issuer, irrespective of the scheme being actively or passively managed, it
has been decided to introduce a similar credit rating based single issuer limit for
actively managed mutual fund schemes.
4. Accordingly, within the limits specified in the clause 1 of Seventh Schedule of
the MF Regulation, following prudential limits shall be followed, for schemes
other than Credit risk funds:
i. A mutual fund scheme shall not invest more than:
a. 10% of its NAV in debt and money market securities rated AAA; or
b. 8% of its NAV in debt and money market securities rated AA; or
c. 6% of its NAV in debt and money market securities rated A and below
issued by a single issuer.
The above investment limits may be extended by up to 2% of the NAV of the
scheme with prior approval of the Board of Trustees and Board of Directors of
the AMC, subject to compliance with the overall 12% limit specified in clause 1
of Seventh Schedule of MF Regulation.
5. The long term rating of issuers shall be considered for the money market
instruments. However, if there is no long term rating available for the same
issuer, then based on credit rating mapping of CRAs between short term and
long term ratings, the most conservative long term rating shall be taken for a
given short term rating. Exposure to government money market instruments
such as TREPS on G-Sec/ T-bills shall be treated as exposure to government
securities.
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6. The circular shall be applicable for all the new schemes to be launched with
effect from date of issuance of the circular. Existing schemes shall be
grandfathered from these guidelines till the maturity of the underlying debt and
money market securities.
7. This circular is issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992, read with the provisions
of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the
interests of investors in securities and to promote the development of, and to
regulate the securities market.
Yours faithfully,
Chhavi M Kapoor
General Manager
Investment Management Department
022-26449112
chhavim@sebi.gov.in
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