MANU/SMFD/0022/2022

Ministry : Securities and Exchange Board of India

Department/Board : Investment Management Department

Circular No. : SEBI/HO/IMD/IMD-1 DOF2/P/CIR/2022/164

Date : 29.11.2022

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,

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.

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