Sebi introduces swing pricing mechanism for debt mutual fund schemes



Capital regulator on Wednesday decided to introduce a swing pricing mechanism for open-ended debt mutual fund schemes, a move that will discourage large investors from sudden redemptions.


To begin with, the swing pricing framework will be made applicable only for scenarios related to net outflows from the schemes, the Securities and Exchange Board of India (Sebi) said in a circular.





The mechanism will be a hybrid framework with a partial swing during normal times and a mandatory full swing during market dislocation times for high risk open-ended debt scheme.


The new framework, aimed at ensuring fairness in treatment of entering, exiting and existing investors in mutual fund schemes, particularly during market dislocation, will be applicable from March 1, 2022.


Generally, swing pricing refers to a process for adjusting a fund’s net asset value to effectively pass on transaction costs stemming from net capital activity to the investors concerned.


In a liquidity-challenged environment, quoted bid/ask spreads and overall trading cost can widen and may not be representative of the executed prices that can be achieved in the market.


During normal times, said industry body Association of in India (Amfi) will prescribe broad parameters for determination of thresholds for triggering swing pricing which will be followed by the asset management companies (AMCs).


The industry body will prescribe an indicative range of swing threshold to the industry for normal times.


For normal times, AMCs will decide on the applicability of swing pricing and the quantum of swing factor depending on scheme specific issues. These need to be disclosed in the Scheme Information Document (SID).


For the purpose of determining market dislocation, the regulator said Amfi will develop a set of guidelines for recommending the same to The regulator will determine ‘market dislocation’ either based on Amfi’s recommendation or suo moto.


Once market dislocation is declared, it will be notified by Sebi that swing pricing will be applicable for a specified period.


Subsequent to the announcement of market dislocation, the swing pricing framework will be mandated only for high risk open-ended debt schemes as they carry high risk securities compared to other schemes.


Sebi said all the open-ended debt schemes (except overnight funds, Gilt funds and Gilt with 10-year maturity funds) will have to incorporate the provision pertaining to mandatory swing factor in their offer documents within three months.


When swing pricing framework is triggered and swing factor is made applicable (for normal time or market dislocation, as the case may be), both the incoming and outgoing investors will get net asset value (NAV) adjusted for swing factor, Sebi said.


All AMCs will have to make clear disclosures along with illustrations in the SIDs including information on how the swing pricing framework works, under which circumstances it is triggered and the effect on the NAV for incoming and outgoing investors.


Swing pricing will be made applicable to all unitholders at PAN level with an exemption for redemptions up to Rs 2 lakh for each mutual fund scheme for both normal times and market dislocation.


AMCs will have to put in place policies and procedures pertaining to swing pricing which are approved by their board and Trustee. The scheme performance shall be computed based on unswung NAV.


Sebi further said disclosures pertaining to NAV adjusted for swing factor along with the performance impact need to be made by the AMCs in a prescribed format in their SIDs and in scheme wise annual reports and abridged summary.


The same may be disclosed on their website prominently only if the swing pricing framework has been made applicable for the said mutual fund scheme.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor





Source link

Share Market Today
Logo