India’s regulator tightens rules on inter-scheme transfers

Indian stocksFund managers in India will face more stringent regulations around the use of inter-scheme transfers as the regulator looks to bolster liquidity management practices. According to a circular issued by the Securities and Exchange Board of India (SEBI), the transfer of assets between different mutual fund schemes can only be used when other means of raising liquidity has been exhausted. These ‘means’ include the use of cash and cash equivalent assets available in the schemes and selling of scheme assets in the capital markets. The fund manager may use market borrowing before inter-scheme transfers but must bear in mind the interest of unitholders and record the reason for any action taken, according to SEBI. Inter-scheme transfers of securities will also be banned if there is negative news or rumours in the mainstream media or an alert is generated about the security, based on internal credit risk assessment during the previous four months The circular, which comes into effect on January 1, 2021, has been introduced to stop fund managers misusing inter-scheme transfers in order to generate liquidity. Fund managers of open-ended funds are also expected to put in place a liquidity risk management model for every scheme to ensure adequate levels of liquidity management. The issue of liquidity management has been a greater focus for regulators worldwide after redemption pressure led to a number of fund suspensions.  © 2020 funds global Asia

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