Sebi to relax mutual fund exposure norms for HFCs

Providing respite for housing finance companies, market regulator Sebi has decided to relax the investment limit for such entities in debt mutual funds. The decision to relax the exposure norms for Housing Finance Companies (HFCs) was taken at Sebi's board meeting here. "... it has been decided that an additional exposure to financial services sector (over and above the existing 30 per cent) not exceeding 10 per cent of the net assets of the scheme in debt oriented mutual fund schemes will be allowed by way of increase in exposure to HFCs only," Sebi said in a press release.

According to the regulator, the decision has been taken after taking into consideration the important role played by HFCs in fulfilling the social objective of increased home ownership and supporting the economy by creating demand for construction of new homes.

In a circular last month, Sebi had directed mutual funds to ensure that total exposure of their debt schemes in a particular sector shall not exceed 30 per cent of the net assets of the scheme.

However, the move had raised concerns of adversely impacting the funding costs for HFCs.

Regarding the decision, Sebi said the relaxation would be subject to certain conditions such as that the securities issued by HFCs are rated 'AA' and above. Also, the HFCs should have been registered with the National Housing Bank (NHB).

"However, the total investment in HFCs cannot exceed 30 per cent of the net assets of the scheme," the release said.

Earlier this week, rating agency ICRA had said that Sebi's directive for investment caps on debt mutual funds could adversely impact the funding costs for NBFCs and HFCs.

Certain debt mutual fund schemes, such as long-term FMPs (fixed maturity plans) have been a preferred route for the NBFC (non-banking finance company) sector to raise medium to long term funds at attractive rates from the bond markets, ICRA said in a research note. Under the regulatory framework, NBFCs include HFCs.

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