LIQUID FUNDS

Sept. 22, 2019

The Securities and Exchange Board of India (SEBI) has made it mandatory for Liquid funds to hold at least 20% of its net assets in liquid assets while mandating an exit load on investors that exit within seven days of making an investment.

About:

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

New Norms:

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.
It also barred liquid funds and overnight funds from parking money, pending deployment, in short-term deposits of scheduled commercial banks and also debt securities having structured obligations and/or credit enhancements. Debt securities with government guarantee have been excluded from such restriction.
The new norms, which will be effective from April 1, 2020, is an attempt to strengthen the risk management framework for liquid funds.

Source : The Hindu