The Securities and Exchange Board of India (SEBI) building in Mumbai. Photo: Abhijit Bhatlekar/Mint
India is catching up with China in an unfortunate aspect, namely defaults of high investment grade (AA and above) bonds. The first AA category jump-to-default (JTD) happened in 2014, with the recent being the third such event. While the Securities and Exchange Board of India (Sebi) has adopted more stringent regulations for credit rating agencies (CRAs) one hopes that such JTD does not become the “new normal”.
A well-regarded regulator such as Sebi builds high expectations about its regulatory prowess. It has always kept the interests of retail investors at the forefront of its mutual fund regulations. Over the last several years, it has focused on reining in fund expenses and fee to distributors. It has enforced rationalization of schemes of mutual funds, as well as alignment of fund objectives to the fund name. However, Sebi needs to now rethink risk management norms of fixed income mutual funds.
In at least two of the three JTD cases, investors in several mutual funds faced significant losses. The market may have overreacted to the news of actual or rumored defaults. Still, such instances…
