Sebi clarifies on use of segregated portfolio by mutual fund industry

Using the mechanism could impact a fund manager's performance incentives

The Securities and Exchange Board of India (Sebi) on Friday issued a detailed circular on the segregated portfolio, which can be used by fund houses if debt assets are downgraded to below investment grade. 

The mutual fund (MF) industry had raised a demand for such a mechanism as instruments below investment grade are highly illiquid.

However, Sebi indicated it doesn’t want the mechanism to become a norm. It said trustees need to put in place a mechanism that negatively impacts the performance incentives of fund managers and chief investment officers involved in the investment process of the segregated assets. The