Fund houses to ask Sebi to cut maturity time for AT-1 bonds
Mutual funds plan to request the Securities and Exchange Board of India to relax maturity norms for additional tier-1 bonds to encourage fund houses to invest in these relatively high-yielding debt instruments that banks issue to shore up equity capital.
«The Securities and Exchange Board of India (Sebi) has provided some leeway when it comes to the valuation norms for AT-1 bonds but the maturity requirement of 100 years for such instruments continues to be a hurdle for mutual fund investments. Talks have been ongoing between mutual funds and the regulator and a committee from the Association of Mutual Funds in India (AMFI) will suggest bringing down the maturity from 100 years to closer to the call option,» a source aware of the developments said.
An email sent to the AMFI seeking comment did not receive a response until Sunday press time.
On August 5, the Sebi said that the valuation of AT-1 bonds my mutual funds would be based on the yield-to-call method, a move that implied lower volatility in net asset value (NAV) emanating from fund houses' investments in the instrument.
However, while the valuation norms were changed, the Sebi had said that AT-1 bonds would still be of 100-year maturity. The 100-year maturity requirement for AT-1 bonds was a step taken to protect retail investors after the Yes Bank crisis resulted in huge losses on AT-1 bonds. AT-1 bonds are perpetual bonds which technically do not have a maturity date.
For mutual funds, while the shift in valuation methodology for AT-1 bonds to the call
