The Securities Exchange Board of India in its Notification dated 29th November 2019, has issued Circular regarding the Norms for Debt Exchange Traded Funds (ETFs) and Index Funds. The following norms shall be adopted by the Asset Management Companies (AMCs).
- Under the Norms to be adopted by all mutual fund houses SEBI has limited every issuer’s exposure to 15 percent weight of the debt ETF index, a minimum eight issuers and The issuer’s rating shall be investment grade.
- The constituents of the index shall have a defined credit rating and defined maturity as specified in the index methodology.
- With regard to replication method, SEBI has stated that the ETFs or index funds will have to replicate the index completely.
- If a specific debt paper in the index is not available, the fund can pick another paper by the same issuer, but the maximum deviation shall be within 10% of the weighted average duration of the securities in the index.
- The duration of debt ETF or index fund need not deviate 5% from the duration of the index at aggregate portfolio level.
- The issuer of such debt ETF needs to ensure compliance to these norms for rebalancing at the end of every calendar quarter and are required to ensure adherence to the new norms within a period of three months;
- In case SEBI has issued final observations regarding ETFs but has not yet launched them, then the issuers will have to submit the compliance status with respect to these norms to SEBI before launching such funds.
The Above norms shall not be applicable to Debt ETFs/Index Funds tracking debt indices having constituents as Government Securities (G-Secs), Treasury Bills and Tri-party Repo (TREPS).
Click here to read the Notification.
