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“The gross exposure of any mutual fund scheme to repo transactions in corporate debt securities shall not be more than 10% of the net assets of the concerned scheme,” SEBI said in its guidelines on participation of MFs in repo in corporate debt securities
Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Friday allowed mutual funds to invest in repo, or short-term repurchase of forward contract, of corporate debt securities with a ceiling of 10% of the net assets of the concerned scheme, reports PTI.
“The gross exposure of any mutual fund scheme to repo transactions in corporate debt securities shall not be more than 10% of the net assets of the concerned scheme,” SEBI said in its guidelines on participation of MFs in repo in corporate debt securities.
In repo transactions, also known as a repo or sale repurchase agreement, securities are sold with the seller agreeing to buy them back at later date. The instrument is used for raising short-term capital.
The repurchase price should be greater than the original sale price, the difference effectively representing interest.
“The cumulative gross exposure through repo transactions in corporate debt securities along with equity, debt and derivatives shall not exceed 100% of the net assets of the concerned scheme,” the Reserve Bank of India (RBI) said, adding that MFs are allowed to participate in repo transactions only in ‘AAA’ rated corporate debt securities.
Besides, they can borrow through repo transactions only if the tenor of the transaction does not exceed a period of six months.
“The details of repo transactions of the schemes in corporate debt securities, including details of counterparties, amount involved and percentage of net value asset (NAV) shall be disclosed to investors in the half yearly portfolio statements and to SEBI in the half yearly trustee report,” the regulator said.
To enable the investors in such schemes take an informed decision, MFs have been directed to give details in the scheme information document on the exposure limit for the scheme and the risk factors associated with repo transactions in corporate bonds, it added.
While post office savings accounts will fetch 4% interest, up from 3.5%, the Monthly Income Scheme and the Public Provident Fund will earn an interest of 8.2% and 8.6% respectively. The government has also decided to discontinue the Kisan Vikas Patras and lowered the maturity period for MIS and NSCs to five years from existing six years
New Delhi: In a bonanza to millions of small savers, the government on Friday increased interest rates on deposit schemes offered by post offices, like savings account, Monthly Income Scheme and Public Provident Fund, reports PTI.
While post office savings accounts (POSA) will fetch 4% interest, up from 3.5%, the Monthly Income Scheme (MIS) and the Public Provident Fund (PPF) will earn an interest of 8.2% and 8.6% respectively, a government release said.
The maximum increase is in the one-year fixed deposits—from 6.25% to 7.7%. The interest rates on other time maturities have been hiked as well.
The new rates will be applicable from the date of notification which will be announced soon.
The decision to hike interest rates, which is in line with the recommendations of Shyamala Gopinath Committee, will make small savings schemes more attractive and returns would be in sync with market rates.
The government, however, decided to discontinue the Kisan Vikas Patras (KVPs) and lowered the maturity period for MIS and NSCs to five years from existing six years.
It also introduced the National Savings Scheme (NSC) with a 10-year maturity.
The annual investment ceiling in PPF savings has been increased to Rs1 lakh from the present limit of Rs70,000, but it would be costlier to obtain loans from the savings under as lending rate has been doubled to 2%.
The government has scraped 5% bonus on MIS and has also done away with commission for agents on PPF and Senior Citizens Savings Schemes.
The finance ministry also said the payment of commission on PPF schemes and senior citizens savings scheme will be discontinued and the agency commission under all other schemes (except Mahila Pradhan Kshetriya Bachat Yojana (MPKBY) agents will be halved to 0.5%.
According to the Gopinath Committee, the agents were paid around Rs2,400 crore commission in 2010-11.
Incentives, if any, paid by the state/UT governments will be reduced from the commission paid by the central government, it added.
In line with Gopinath Committee’s suggestions, the government also decided to align rate of interest on small savings schemes with G-Sec rates of similar maturity, with a spread of 25 basis points (bps) with two exceptions.
“The interest rates for every financial year will be notified before 1st April of that year," it said.
It further said the minimum share of states in net small savings collections in a year for investment in state government securities will be reduced from 80% to 50%.
The remaining amount will be invested in central government securities or lent to other willing states or in securities issued by infrastructure companies/agencies, wholly owned by central government, it added.
On the operational issues of NSSF, the government has also decided to set up a monitoring group consisting of officials from ministry of finance, Reserve Bank of India (RBI), Department of Posts, State Bank of India (SBI), other select banks and some state governments.
The panel will resolve various operational issues like reducing the time lag between collection and investment.
An earlier government panel had noted that Kisan Vikas Patras (KVPs) and NSC instruments are quite expensive in terms of the effective cost to the government and should be discontinued.
The Gopinath Committee was however of the view that while KVP may be discontinued as it is prone to misuse being a bearer-like instrument, NSC could continue with modifications.
Following recommendations of the 13th Finance Commission, the Committee was set up in July 2008 to review of the existing parameters for the small saving schemes in operation and recommend mechanisms to make them more flexible and market linked.
The Committee submitted its report to the government on 7 June 2011.
In September, the Government had increase its market borrowings by Rs52,800 crore to Rs4.7 lakh crore in 2011-12, because of dip in small savings collection. Small saving collections are losing sheen as banks are offering higher interest rates.
Budget 2011-12 calculations were made with estimation of Rs24,000 crore in NSSF, but instead the fund dipped by Rs35,000 crore.