Review of norms regarding investment in debt instruments with special features, and the valuation of perpetual bonds

Last updated: 12 March 2021

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This circular from SEBI introduces new regulations for mutual funds investing in debt instruments with special features, such as subordination or convertibility to equity. It sets prudential investment limits to manage the risks associated with these instruments. Additionally, it clarifies the valuation methods for perpetual bonds, treating their maturity as 100 years for valuation purposes, and prohibits close-ended debt schemes from investing in them. These changes aim to protect investor interests and ensure market stability.

Securities and Exchange Board of India CIRCULAR SEBI/HO/IMD/DF4/CIR/P/2021/032 March 10, 2021 All Mutual Funds (MFs)/Asset Management Companies (AMCs)/ Trustee Companies/ Boards of Trustees of Mutual Funds/ Association of Mutual Funds in India (AMFI) Sir / Madam, Subject: Review of norms regarding investment in debt instruments with special features, and the valuation of perpetual bonds. A. Review of Norms of Investment in Instruments having Special Features 1.

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1 Year PLAN

1999

(Excl. of GST ₹359)

BEST VALUE

2 Years PLAN

3499

(Excl. of GST ₹629)

3 Months PLAN

999

(Excl. of GST ₹179)

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FAQ :

Mutual funds cannot own more than 10% of such instruments from a single issuer. A scheme's debt portfolio cannot exceed 10% in these instruments, and no more than 5% from a single issuer.

For valuation purposes, the maturity of all perpetual bonds will be treated as 100 years from their issuance date.

No, close-ended debt schemes are prohibited from investing in perpetual bonds.

This circular comes into effect from April 01, 2021.

Investments exceeding the specified limits as of the circular's date will be grandfathered. The scheme must not make fresh investments until the holdings fall below the new limits.

Debt schemes investing in or having the provision to invest in such instruments must ensure their Scheme Information Document includes provisions for a segregated portfolio.