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.

By Sameer Rastogi

18 years of experience, PG in Finance and has delivered Wealth Management lectures at IIM Lucknow, IBS Gurgaon and IIPM Delhi. Contributed to various newspapers. Strength – Application of Economic fundamentals to Investment

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