Sebi board allows mutual funds to segregate distressed assets, widens scope of OFS mechanism

Market regulator Securities and Exchange Board of India (Sebi) announced a slew of measures towards easing hurdles for some products and helping mutual funds handled liquidity crisis.

The Sebi board approved a proposal to allow mutual funds to create segregated portfolios, or undertake side pocketing, at its last board meeting for the calendar year on Wednesday.

Creation of segregated portfolios or side pocketing is a mechanism to separate distressed and illiquid assets from liquid assets in a mutual fund portfolio to deal with the situation arising due to a credit event. With a segregated portfolio, investors who may take the hit when the credit event happen shall get the upside of future recovery

Creating a segregated portfolio may be optional for mutual funds and approval from trustees will be necessary for activating such a portfolio.

Commenting on questions related to any potential misuse of the segregated portfolio by mutual funds, Sebi chairman Ajay Tyagi said the provision will come with various safeguard.

The regulator has also discussed the proposal of allowing custodial services in the commodity derivatives segment. In that regard, the board has approved the amendments to Sebi (Custodian and Securities) Regulations. The move will enable participation from institutional investors in the commodity derivatives market.

The Sebi board also approved a proposal to expand the offer-for-sale (OFS) mechanism for reduction of stake in listed companies and relaxed clubbing of investment limit norms for well-regulated foreign investors.

The expansion of offer-for sale scheme will include all companies with Rs 1,000-crore and above market-capitalisation.