{"id":3825,"date":"2021-04-02T06:47:50","date_gmt":"2021-04-02T06:47:50","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=3825"},"modified":"2021-04-02T06:47:53","modified_gmt":"2021-04-02T06:47:53","slug":"sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/","title":{"rendered":"SEBI Reviews Norms for Investment in Special Features Instruments, Segregated Portfolio &#038; Perpetual Bonds"},"content":{"rendered":"\n<p class=\"has-drop-cap\">On 10.03.2021, SEBI, through the powers\ngiven under the provision of section 11 (1) of the SEBI Act 1992, read with the\nprovisions of Regulation 77 of the SEBI (Mutual Funds) Regulations 1996, has\nreviewed the norms for investment in special features instruments, segregated\nportfolio, and perpetual bonds. The same has been notified by the board by way\nof SEBI Circular SEBI\/ HO\/ IMD\/ DF4\/ CIR\/ P\/ 2021\/ 032.<\/p>\n\n\n\n<p>Further, the said act was done in order\nto safeguard investors\u2019 rights in the securities and capital market and to\npromote the regulation and development of the said market. Also, it shall be\ntaken into consideration that this SEBI Circular will come into effect from\n01.04.2021.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a7819d4bbd\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a7819d4bbd\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/#Eligible_Entities_for_this_SEBI_Circular\" title=\"Eligible Entities for this SEBI Circular\">Eligible Entities for this SEBI Circular<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/#Norms_for_Investment_in_Special_Features_Instruments\" title=\"Norms for Investment in Special Features Instruments\">Norms for Investment in Special Features Instruments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/#Norms_for_Segregated_Portfolio_in_the_Scheme_of_Information_Document\" title=\"Norms for Segregated Portfolio in the Scheme of Information Document&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; \">Norms for Segregated Portfolio in the Scheme of Information Document&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/#Valuation_of_Perpetual_Bonds\" title=\"Valuation of Perpetual Bonds\">Valuation of Perpetual Bonds<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/sebi-reviews-norms-for-investment-in-special-features-instruments-segregated-portfolio-perpetual-bonds\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligible_Entities_for_this_SEBI_Circular\"><\/span>Eligible Entities for this SEBI Circular<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The entities or intermediaries eligible\nfor this SEBI Circular are as follows:<\/p>\n\n\n\n<ol><li>Mutual\nFunds;<\/li><li>Asset\nManagement Companies;<\/li><li>Trust\nCompanies;<\/li><li>Board\nof Trustees of Mutual Funds;<\/li><li>Association\nof Mutual Funds in India;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Norms_for_Investment_in_Special_Features_Instruments\"><\/span>Norms for Investment in Special Features Instruments<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Mutual Funds invest in some debt instruments with special features, such as subordination to equity and\/ or convertible to equity upon the trigger of a pre-determined event for loss absorption. Further, additional Tier I and Tier 2 bonds that are issued under the Basel III framework are some of the instruments which may have the above mentioned special features. Also, the debt instruments having such special features as mentioned above, which else are <a href=\"https:\/\/swaritadvisors.com\/blog\/pros-and-cons-of-non-convertible-debentures-issued-by-nbfc\/\" class=\"text-primary\"><strong>Non Convertible Debentures<\/strong><\/a>, may be considered as debt instruments until the same are converted to equity.<\/p>\n\n\n\n<p>Further, at present, there are no specified investment threshold limits for these debt instruments with special features, and the same may result to be riskier than other debt instruments. Thus, the following prudential investment thresholds have been set out for such instruments:<\/p>\n\n\n\n<ul><li>No Mutual Fund (MF) under all its schemes will own more than 10% of such debt instruments issued by a single issuer;<\/li><li>A Mutual Fund scheme will not invest: <\/li><\/ul>\n\n\n\n<ol><li>More\nthan 10% of its Net Asset Value (NAV) of the \u201cdebt portfolio\u201d of the scheme in\nsuch debt instruments;<\/li><li>More\nthan 5% of its Net Asset Value of the \u201cdebt portfolio\u201d of the scheme in such debt\ninstruments which are issued by a single issuer;<\/li><\/ol>\n\n\n\n<p>The above mentioned investment limit for a mutual fund (MF) scheme will be within the overall limit or threshold for debt instruments, which are issued by a single issuer, as prescribed in clause 1 of the Seventh Schedule of the SEBI (Mutual Fund) Regulations 1996, and other prudential limits with regard to the debt instruments.<\/p>\n\n\n\n<p>The investments of MF schemes in such instruments, that, too in excess of the limits prescribed under paragraph 2 above as on the date of this SEBI circular may be grandfathered, and such MF schemes will not make any new investment in such debt instruments until the investment comes below the prescribed limits;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Norms_for_Segregated_Portfolio_in_the_Scheme_of_Information_Document\"><\/span>Norms for Segregated Portfolio in the Scheme of Information Document&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The debt schemes which have an\ninvestment in such debt instruments as referred at paragraph \u2018A\u2019 above, or the\ndebt schemes that have a provision to invest in such debt instruments will\nensure that the SID (Scheme Information Document) of the said scheme has\nprovisions for the segregated portfolio. Further, it shall be noted that the\nprovisions to allow the creation of segregated portfolio in existing schemes\nwill be subject to compliance with Regulation 18 (15A) of the SEBI (Mutual\nFunds) Regulations 1996.<\/p>\n\n\n\n<p>Further, if the said debt instrument\nneeds to be written off or to be converted into equity pursuant to any\nproposal, then, in that case, the date of the said proposal will be treated as\nthe trigger or the commencement date. <\/p>\n\n\n\n<p>However, if the said instruments are\nwritten off or are converted to the equity without a proposal, then, in that\ncase, the date of write off or conversion of a debt instrument into equity will\nbe considered as the trigger date.<\/p>\n\n\n\n<p>Also, it shall be noted that on the said\ntrigger or commencement date, AMCs (Asset Management Companies) may, at their\nchoice, create a lsegregated portfolio in a mutual funds scheme, which shall be\nsubject to compliance with relevant provisions as follows, which are issued\nwith regard to the Creation of Segregation Portfolio in the Mutual Fund\nSchemes, and any other Regulations\/ Circulars\/ Guidelines issued in the future\nby the board from time to time: <\/p>\n\n\n\n<ol><li>SEBI\nCircular No SEBI\/ HO\/ IMD\/ DF2\/ CIR\/ P\/ 2018\/ 160, issued on 28.12.2018;<\/li><li>SEBI\nCircular No SEBI\/ HO\/ IMD\/ DF2\/ CIR\/ P\/ 2019\/ 127, issued on 7.11.2019; &nbsp;<\/li><\/ol>\n\n\n\n<p>Further, it shall be noted that the\nAsset Management Companies or Valuation Agencies will ensure that the financial\nstress of an issuer and its capabilities to repay the dues or borrowings are\nshowcased in the valuation of the securities, starting from the trigger date.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Valuation_of_Perpetual_Bonds\"><\/span>Valuation of Perpetual Bonds<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>With respect to the valuation of\nperpetual bonds with call and put options, it is explained that such bonds will\nbe valued in line with the SEBI circular No MRD\/ CIR\/ 8\/ 92\/ 2000, issued on\n18.09.2000, regardless of the nature of the issuer. Further, it shall be taken\ninto consideration that the maturity of all the perpetual bonds will be treated\nas 100 years, starting from the date of issuance of the perpetual bond for the\npurpose of valuation.<\/p>\n\n\n\n<p>Further, the SEBI circular No SEBI\/ IMD\/\nCIR No 12\/ 147132\/ 08, issued on 11.12.2008, allows the close ended debt mutual\nfund scheme to invest only in those securities, which mature on or before the\ndate of maturity of the said scheme. Consequently, close ended debt schemes\nwill not invest in perpetual bonds.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> In a nutshell, SEBI, under the ambit of the powers given by the provision of section 11 (1) of the <strong>SEBI Act 1992<\/strong><sup><a href=\"https:\/\/www.sebi.gov.in\/legal\/acts\/jan-1992\/securities-and-exchange-board-of-india-act-1992-as-amended-by-the-finance-act-2017-_3.html\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup><strong>,<\/strong> read with the provisions of Regulation 77 of the SEBI (Mutual Funds) Regulations 1996, has passed a circular to review the norms for investment in special features instruments, segregated portfolio, and perpetual bonds.  <\/p>\n\n\n\n<p><strong>Official SEBI Circular<\/strong><\/p>\n\n\n<a href=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/04\/1615379441578.pdf\" class=\"pdfemb-viewer\" style=\"\" data-width=\"max\" data-height=\"max\"  data-toolbar=\"bottom\" data-toolbar-fixed=\"off\">1615379441578<br\/><\/a>\n<p class=\"wp-block-pdfemb-pdf-embedder-viewer\"><\/p>\n","protected":false},"excerpt":{"rendered":"<p>On 10.03.2021, SEBI, through the powers given under the provision of section 11 (1) of the SEBI Act 1992, read with the provisions of Regulation 77 of the SEBI (Mutual Funds) Regulations 1996, has reviewed the norms for investment in special features instruments, segregated portfolio, and perpetual bonds. The same has been notified by the [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":3827,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[559],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3825"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=3825"}],"version-history":[{"count":5,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3825\/revisions"}],"predecessor-version":[{"id":3832,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/3825\/revisions\/3832"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/3827"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=3825"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=3825"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=3825"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}