Generally, segregation is done to separate distressed assets from other more liquid assets in a portfolio.
In the wake of the pandemic, the watchdog said the trigger date for segregation of portfolio would be the date on which proposal for debt restructuring was received by the asset management company (AMC).
Segregated portfolio can be created in a mutual fund scheme by an asset management company in case of a credit event, which includes downgrade to below investment grade and subsequent downgrades in credit rating by a Sebi-registered credit rating agency, as per the regulator’s circular issued in December 2018.
The latest modifications, that is effective immediately, would be in place till December 31, 2020.
On August 6, the Reserve Bank of India (RBI) permitted lending institutions to extend the resolution facility to borrowers having stress on account of COVID-19.
Further, on August 31, the Securities and Exchange Board of India (Sebi) said that if a credit rating agency is of the view that the restructuring by the lenders/ investors is solely due to COVID-19 related stress or under the RBI framework, then the agency need not consider the same as a default event.
Against this backdrop, Sebi has issued the circular to partially modify the norms related to segregation of portfolio.
“… the date of proposal for restructuring of debt received by AMCs shall be treated as the trigger date for the purpose of creation of segregated portfolio,” the regulator said in the circular on Wednesday.
Such proposal of restructuring of debt received by AMCs should be immediately reported to the valuation agencies, credit rating agencies, debenture trustees and AMFI (Association of Mutual Funds in India), it added.
According to the circular, AMFI, on receipt of such information, should immediately disseminate the same to its members.
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