October 2020
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October 2020
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India regulator mulls measures to lower bond fund redemption risk, report says

The move by Sebi comes after Franklin Templeton India shut six of its funds in April
By Goh Thean Eu   
September 28, 2020

India may introduce measures to reduce foreclosure or redemption risk of bond mutual funds, according to a local financial news website, quoting Ajay Tyagi, chairman of the Securities and Exchange Board of India (Sebi).

The move comes after US asset manager Franklin Templeton shut six of its funds in April after facing redemption pressure as investors rushed to cash out as the economy slumped from the coronavirus crisis. It was the biggest ever forced closure of funds in India.

Mr. Tyagi says Sebi is considering setting up a central clearing corporation for repos in investment grade corporate bonds with guaranteed settlement.

“This can allow mutual funds to borrow money against their assets when redemptions are high without having to sell them at throwaway prices,” Mr. Tyagi says in the report by financial news website Livemint on September 24.

He says the regulator is also considering creating a backstop entity to purchase illiquid debt during times of crisis.

The report did not provide more details or provide a timeline for the measures. Spokespersons for Sebi did not immediately respond to questions from Asia Asset Management.

The Reserve Bank of India, the central bank, opened a special facility of as much as 500 billion rupees (US$6.58 billion) for banks to lend to mutual funds facing liquidity constraints after Franklin Templeton shut down the funds.