The Securities and Exchange Board of India (SEBI) has decided to introduce swing pricing for open-ended debt mutual fund (MF) schemes (except overnight funds, Gilt funds and Gilt with 10-year maturity funds).
Objective: To protect large investors from sudden redemption and ensure fairness of treatment of entering, exiting and existing investors in open-ended debt mutual fund schemes.
What is Swing Pricing?
i.Swing pricing allows a fund house (i.e. Asset Management Company (AMC)) to adjust the net asset value (NAV) of any Mutual Fund (MF) scheme, that is facing redemption pressure.
ii.After enabling the Swing pricing, investors exiting or entering the MF scheme have to transact only at the adjusted NAV (which is lower than the usual NAV).
Framework for Swing Pricing:
i.Initially the swing pricing framework was made applicable only for net outflows (outflows exceeding inflows) from the MF schemes.
ii.The framework will be a hybrid framework with a partial swing during normal times and a mandatory full swing during market dislocation times for high-risk open-ended debt schemes.
a.Swing pricing for normal times:
i.Association of Mutual Funds in India (AMFI) parameters for determination of thresholds for triggering swing pricing which shall be followed by the AMCs.
ii.AMFI will prescribe an indicative range of swing threshold to the industry for normal times.
b.Swing Pricing for market dislocation:
i.AMFI will develop a set of guidelines/parameters/model for recommending the swing pricing for market dislocation to SEBI.
ii.SEBI will determine ‘market dislocation’ either based on AMFI’s recommendation or by itself.
iii.Minimum swing factor for open-ended debt schemes:
| Max Credit Risk of scheme | ||||
| Class A (CRV >=12) | Class B (CRV >=10) | Class C (CRV <10) | ||
| Max Interest Rate Risk of the scheme | Class I: (MD<=1 year) | Optional | Optional | 1.5% |
| Class II: (MD<=3 years) | Optional | 1.25% | 1.75% | |
| Class III: Any Macaulay duration | 1% | 1.5% | 2% | |
Note – CRV – Credit Risk Value; MD – Macaulay Duration
Key Points:
i.Swing pricing will not be applicable for redemptions up to Rs 2 lakh for each scheme both in normal and market dislocation times (it will safeguard small investors).
ii.The above frameworks are issued in exercise of the powers conferred under Section 11 (1) of the SEBI Act 1992, read with the provision of Regulation 77 of SEBI (MF) Regulation, 1996.
iii.The frameworks will be enforced from March 2022 onwards. Click here to know more
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Recent Related News:
In August 2021, SEBI merged 2 debt securities regulations viz, SEBI (Issue and Listing of Debt Securities) Regulations, 2008 and SEBI (Non-Convertible Redeemable Preference Shares) Regulations, 2013 into a single Regulation called – SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.
About Securities Exchange Board of India (SEBI):
Establishment – 1992
Headquarters – Mumbai, Maharashtra
Chairman – Ajay Tyagi
