SEBI asks CRAs to give 30-day notice on withdrawal of ratings on open-end MFs

Market regulator, Securities Exchange Board of India (SEBI) in a recent development has asked credit rating agencies (CRAs) to give 30-day prior notice to investors before withdrawing ratings of any open-ended Mutual Fund schemes. SEBI has given this instruction to CRAs to protect the investors' interest.

As open-ended Mutual Fund plans are perpetual in nature and which has no certain maturity, withdrawal of rating of such Mutual Fund plans is permitted.

However, the units of MF schemes are held by lot many investors and hence CRAs should give prior notice of 30-days on withdrawal of ratings. And the same shall be publicly available on CRAs website, according to SEBI sources.

It has been learnt that the decision has been finalised after discussion with credit rating agencies and representations received from the industry.

Further, the credit rating agencies will need to provide suitable reasons on withdrawal of ratings and release a press issue before such a withdrawal.

The CRAs have been told to withdraw their ratings after receiving request from asset management companies. Presently, very few AMCs use credit rating agencies to rate their funds. The main motive is to help institutional clients as such clients have internal guidelines for selecting a fund to invest in.