MFs can short-sell, lend, borrow shares

MUMBAI: Capital market regulator SEBI on Friday said mutual funds can engage in short-selling of securities as well as lending and borrowing of securities. However, these amendments will take effect at a later date to be notified by SEBI.

This will be after the new framework for short-selling and securities lending and borrowing is put into place.
“It brings two-fold benefits. One, it opens up another avenue of revenue. Two, on days when there is a sharp movement in the market, you have the option to lend securities to generate liquidity.

These factors will go a long way towards stemming volatility. Besides, it is a developed market criteria,” said Ajay Bagga, CEO, Lotus India AMC. Mutual funds currently hold around 1,70,000 crore of equity securities in hand. When the final guidelines on short-selling are implemented, it would ensure that these are ably deployed, say fund managers. When contacted, AMFI chairman AP Kurien said it was a welcome move.

“Short-selling has been allowed by RBI for banks and others in government securities provided you settle on the same day. We had mooted this sometime ago to Sebi that this may also be allowed for mutual funds. The next stage is allowing short-selling in other securities like equity. However, for that we are awaiting the Sebi guidelines on the same,” Mr Kurien said.

According to Mr Bagga, the measure is significant as it would lend depth to the market.