Hot money tips: Investing in debt mutual funds? Must know this SEBI guideline

Hot money tips: The Securities and Exchange Board of India (SEBI) had introduced graded exit loads on debt funds from October 20, 2019.

Hot money tips: The load falls from 0.007 per cent on the first day to 0.0045 per cent on the sixth day from the date of investment. Photo: Reuters

Hot money tips: The Securities and Exchange Board of India (SEBI) had introduced graded exit loads on debt funds from October 20, 2019. The load falls from 0.007 per cent on the first day to 0.0045 per cent on the sixth day from the date of investment. There is no exit load from the seventh day onwards.

Speaking on the SEBI guidelines on exit load in debt funds Omkeshwar Singh, Head - Rank MF, Samco Securities said, "The idea behind the introduction of exit loads on investments in debt funds is to shift the short-term money to overnight funds. The move is aimed at deterring corporates from using liquid funds to park their money for very short periods. Big purchases and redemptions from corporates can amplify the risk in these funds for retail investors, especially in times of poor liquidity or credit concerns in the debt market. It is therefore positive for a retail investor as it lowers the chance of volatility caused by big flows in liquid fund returns."

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Omkeshwar Singh said that Exit Load in debt mutual funds varies according to different debt categories which is as follows:

Debt - Liquid Fund
Exit Load - 0.007% for Day 1, 0.0065% on Day 2, 0.0060% on Day 3, 0.0055% on Day 4, 0.0050% on Day 5, 0.0045% on Day 6, NIL after 7D.

Debt - Credit Risk Fund
Exit Load - Nil up to 15% of units, for remaining units 3% on or before 1Y, 2% after 1Y but on or before 2Y, 1% after 2Y but on or before 3Y, Nil after 3Y.

Debt - Dynamic Bond
Exit Load - Nil up to 10% of units, for remaining units - 3% on or before 12M, 2% after 12M but on or before 24M, 1% after 24M but on or before 36M, 0.50% after 36M but on or before 48M, Nil after 48M.

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