CRAs told to give 30-day notice before withdrawing rating of open-end MF plans

To safeguard investors’ interest, the capital market regulator Securities and Exchange Board of India has asked credit rating agencies (CRAs) to give a 30-day prior notice to investors before withdrawing ratings of any open-ended mutual fund scheme. “Open-ended mutual fund schemes being perpetual in nature and having no specified maturity, withdrawal of rating of such schemes is permitted,” SEBI said in a circular. “However, as units of such schemes are held by many investors, such ratings shall be placed on notice of withdrawal for at least 30 days, which shall be publicly available on the CRA’s website.” This move has been taken post consultation with credit rating agencies and representations received from the industry. The credit rating agencies will also have to cite appropriate reasons on withdrawal of rating. Further, CRAs will have to issue a press issue before such a withdrawal. To be sure, credit rating agencies are already providing an assessment of debt funds depending on investment objectives, management and creditworthiness of the portfolio. Though a positive credit rating gives confidence to investors and distributors, the fund selection largely depends on the portfolio of a scheme, believe experts. Further, the market regulator has asked CRAs to withdraw their ratings after receiving request from AMCs. Currently, very few AMCs use CRAs to rate their funds. The primary purpose is to cater to institutional clients as such clients have internal guidelines for selecting a fund for investments.