SEBI asks SEBI to withdraw circular issued on perpetual bonds, know what is the matter

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The Department of Financial Services (DFS) of the Ministry of Finance has sent a memorandum to SEBI asking it to withdraw the decision.

New Delhi. Market regulator SEBI (SEBI) has implemented a new scheme for mutual funds. In fact, on March 10, 2021, SEBI had decided to 100 years of maturity of Perpetual Bond or AT1 Bonds by issuing a circular. This caused a big crisis in front of banks and mutual funds. This rule was to come into force from April 1, 2021. Now the Finance Ministry has asked Sebi to withdraw this circular.

With the maturity of AT1 bonds 100 years, SEBI has fixed the limit of investment in debt (debt) with special features by mutual funds. However, the Finance Ministry has no objection to this new rule. According to the SEBI circular, mutual funds will now be able to invest only 10 per cent of their assets under management in debt with special features that can be converted into equity. SEBI said that it would include AT1 and AT2 bonds. According to the circular, mutual funds will not be able to invest more than 5% of their assets in the debt of the Singer Issuer.

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The maturity of AT1 bonds brought the mutual funds industry to 100 years, because the revaluation of these bonds would have caused a loss to investors. For this reason, the mutual funds body AMFI opposed this decision of SEBI. AMFI said that this rule is fatal for banks and capital markets, this will make it difficult for banks to raise capital and banks will have to depend on the government for capital. Therefore it should be withdrawn. AMFI said that due to 100 years of maturity, a slight change in interest rates will cause a big loss for those who invest in these bonds and fear that the investors will not invest in it.Also read- Anupam Rasayan IPO: One more opportunity to earn today, know everything before putting money ..

What is Perpetual Bond
AT1 and AT2 bonds are also called Perpetual bonds, as they have no fixed maturity date. However, banks keep repacking them at regular intervals. If the bank’s capital falls due to high NPA, then these bonds absorb that deficit.

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