SEBI tightens norms for liquid funds

News:The Securities and Exchange Board of India (Sebi) has released a circular on risk management framework for liquid funds.


About Liquid funds:

  • Liquid funds belong to the debt category of mutual funds.
  • They invest in very short-term market instruments like treasury bills, government securities among others.
  • They are getting popular with retail investors due to their higher than savings bank account returns and easy liquidity. 

Circular on liquid funds:

  • Liquid funds shall hold at least 20% of their net assets in liquid assets. For this purpose, liquid assets shall include cash, government securities, T-bills and repo on government securities.
  • In case the exposure in such liquid assets falls below 20% of net assets of the scheme, the fund house will first have to meet the 20% norm before making any further investments.
  • The new norms will be effective from April 1,2020.

Additional information:

Mutual fund

  • Mutual Fund(MF) is an investment vehicle made up of a pool of money collected from public investors.
  • The pooled money is used to buy other securities by professional money managers.It charges a small fee for managing the money.

Securities and Exchange Board of India (SEBI):

  • SEBI was established in 1992 in accordance with the provisions of the Securities and Exchange Board of India Act,1992 (SEBI Act).
  • The basic functions of the SEBI is to protect the interests of investors in securities and to promote and regulate the securities market.
  • The board of SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct inquiries, pass rulings and impose penalties.