At a board meeting held at its headquarters in Mumbai, Sebi on Wednesday decided to allow mutual funds to sell government securities (G-sec) contracted for purchase in the DVP-III mode.
Under the DVP-III mode of settlement, it is possible to sell government securities already contracted for purchase without taking delivery, provided the transaction is guaranteed by an approved central counter-party, namely, the Clearing Corporation of India.
According to current guidelines, a sale of government securities is permitted only if MFs actually hold the securities in their portfolio.
Fund managers said the modifications in the existing guidelines were expected to improve liquidity in the government securities market by enabling the sale of government securities on the day of purchase, thereby reducing the price risk on the part of market participants.
“It would facilitate a better management of debt funds as managers would be able to take advantage of intra-day volatility,” said Ashish Nigam, head, fixed income, Religare-Aegon MF.
However, fund managers are of the view that this is a much delayed decision taken by Sebi as the Reserve Bank of India had allowed the DVP-III settlement for all market participants way back in 2004.
Managers also said while DVP-III settlement would allow MFs to short-sell government securities, it would, however, require separate guidelines from the capital market regulator.
