Pricing in DEBT Funds : 7 key aspects

Recently, SEBI has proposed a new pricing mechanism for Debt Funds that should help restore the faith in Debt schemes. Here are the 7 key aspects

• Swing pricing will help reduce the first-mover advantage during high redemptions in debt schemes.
• It will materially reduce the risk of run on debt funds, which was faced by Franklin Templeton in April 2020.
• It will discourage large scale redemptions which adversely impacts the investors who stay put in the fund.
• The degree of swing pricing shall vary, depending upon the intensity of withdrawals during normal or panic times.
• SEBI has proposed high risk schemes (C-III category) to have swing pricing. The NAV will bear an exit load of 2% during the times of stress.
• As per the proposal, this load shall not be applicable for withdrawals upto Rs 2 Lakhs for all investors, or upto Rs 5 Lakhs for Senior Citizens.
• Swing pricing can come into force during high inflows also. This is pertinent where a fund is about to recover dues from a written-down security. In such a case, large institutional inflows may occur in a short span which can substantially reduce the stakes of all those retail investors who have stayed put in the fund for long term.