INSUBCONTINENT EXCLUSIVE:
Fund managers handling debt schemes whose portfolio gets segregated because of a blundered investment call will have to forgo a portion of
their annual bonus, while mutual funds will not be able to charge fees for managing the separated part of the product
These, among a raft of measures on segregation of debt portfolio, were announced by Securities and Exchange Board of India on Friday to
protect investors in the event of a credit default that led to erosion of scheme returns.
The capital market regulator said the move to
trustees shall ensure to have a mechanism in place to negatively impact the performance incentives of fund managers, chief investment
involved in the investment process of securities under the segregated portfolio, mirroring the existing mechanism for performance incentives
portfolio is a mechanism to separate distressed, illiquid assets from other more liquid assets in a mutual fund portfolio to deal with a
situation arising due to a credit event
The move comes in the wake of defaults by ILFS that led to erosion of NAVs of various debt schemes
The NAVs of some schemes because of defaults or ratings downgrades have fallen by 3%-6% on a single day, which is roughly 50-75% of the
annual returns of some bond schemes.
With a segregated portfolio, investors would benefit in the event of recovery from the defaulting
company.
The regulator said fund houses also cannot charge investment and advisory fees on the segregated portfolio
However, total expense ratio excluding the investment and advisory fees can be charged, on a pro-rata basis only upon recovery of the
investments in segregated portfolio.
Sebi said the legal charges related to recovery of the investment of the segregated portfolio should be
within the maximum total expense ratio limit applicable to the main portfolio.The legal charges in excess of this,would have to be borne by
approved the proposal to allow mutual funds to create segregated portfolios with respect to debt and money market instruments-.Creating
segregated portfolio is optional for mutual funds, but requires trustee approval.
If investors want to redeem their units from the scheme,
they would get redemption proceeds based on the net asset value of main portfolio and would continue to hold the units of segregated
portfolio.
If trustees don't approve the proposal of segregated portfolio,then subscription and redemption applications would be processed
based on the net asset value of total portfolio.
Fund house would have to disclose about the segregated portfolio in all scheme related
They would also have to provide a status update to investors at the time of recovery and also at the time of writing-off of the segregated
said.
Fund managers handling debt schemes whose portfolio gets segregated because of a blundered investment call will have to forgo a
portion of their annual bonus, while mutual funds will not be able to charge fees for managing the separated part of the product
These, among a raft of measures on segregation of debt portfolio, were announced by Securities and Exchange Board of India on Friday to
protect investors in the event of a credit default that led to erosion of scheme returns.
The capital market regulator said the move to
trustees shall ensure to have a mechanism in place to negatively impact the performance incentives of fund managers, chief investment
involved in the investment process of securities under the segregated portfolio, mirroring the existing mechanism for performance incentives
portfolio is a mechanism to separate distressed, illiquid assets from other more liquid assets in a mutual fund portfolio to deal with a
situation arising due to a credit event
The move comes in the wake of defaults by ILFS that led to erosion of NAVs of various debt schemes
The NAVs of some schemes because of defaults or ratings downgrades have fallen by 3%-6% on a single day, which is roughly 50-75% of the
annual returns of some bond schemes.With a segregated portfolio, investors would benefit in the event of recovery from the defaulting
company.The regulator said fund houses also cannot charge investment and advisory fees on the segregated portfolio
However, total expense ratio excluding the investment and advisory fees can be charged, on a pro-rata basis only upon recovery of the
investments in segregated portfolio.Sebi said the legal charges related to recovery of the investment of the segregated portfolio should be
within the maximum total expense ratio limit applicable to the main portfolio.The legal charges in excess of this,would have to be borne by
approved the proposal to allow mutual funds to create segregated portfolios with respect to debt and money market instruments-.Creating
segregated portfolio is optional for mutual funds, but requires trustee approval.If investors want to redeem their units from the scheme,
they would get redemption proceeds based on the net asset value of main portfolio and would continue to hold the units of segregated
portfolio.If trustees don't approve the proposal of segregated portfolio,then subscription and redemption applications would be processed
based on the net asset value of total portfolio.Fund house would have to disclose about the segregated portfolio in all scheme related
They would also have to provide a status update to investors at the time of recovery and also at the time of writing-off of the segregated
