SEBI begins work on infra debt funds for MFs: Sources

The Securities and Exchange Board of India (SEBI) is doing its bit to boost infrastructure funding in the country. The market regulator is working on a proposal for an infrastructure debt fund, specifically for mutual fund, reports CNBC-TV18’s Vidhi Godiawala quoting sources.

Taking a cue from their budget announcements and looking at boosting infra financing in the country, the sources said that SEBI is exploring options to come out with an infra debt fund for mutual fund houses. This proposed mutual fund infra debt fund is still in its conceptualization phases.

The budget 2011 allowed FIIs to invest up to USD 25 billion in corporate infra bonds. Sources also said that the proposed fund will be a separate category of a mutual fund, where SEBI is in talks with the finance ministry and mutual fund houses in terms of the final structure and modelling of this proposed infra debt fund.

FIIs will be investing their money into this proposed mutual fund infra debt fund. In turn, the fund houses will invest FIIs money into the various infrastructure projects across the country.

However, the paper or security proposed fund would have a minimum residual period of maturity of five years at the time of investment.

The budget had also promised that FII investments into infra funds will be exempt from the 20% withholding tax. Sources informed that the regulator and fund houses are looking at clarity on the taxation of this proposed infra debt fund.

They are seeking an exemption of that 20% of the withholding tax, so that it would make it more lucrative for the FIIs to come in and pout the money into this proposed infra debt funds, which will be floated by the mutual fund houses.

In the mean time, mutual funds are receiving feedback from the various FIIs. They are trying to see whether there is an appetite for the fund. They will need finance ministry approval for the same.

However, the initial feedback from the finance ministry has been positive on this front.

Source: http://www.moneycontrol.com/news/mf-news/sebi-begins-workinfra-debt-funds-for-mfs-sources-_538788.html