``The committee recommended to restrict the investments to 10 per cent of the NAV (net asset value) of a scheme in the equity shares or equity related instruments of a single company," SEBI said in a statement. Current rules allow a mutual fund to invest up to 10 per cent of the paid-up capital of a single company.

The committee, headed by the former cabinet secretary B G Deshmukh, felt that index funds and sector or industry specific funds should be required to restrict their exposure to 10 per cent or the weightage of the scrip in the index of that particular sector, whichever is higher.

The panel also suggested a ceiling on investments in debt of any single issuer of 15 per cent of NAV, which can be relaxed to 25 per cent with prior approval of the mutual fund's board.There are no restrictions on the investments in debt paper of a single issuer under existing regulations.

It also recommended restricting mutual fund holdings in unlisted firms to 10 per cent of the NAV for close ended schemes and five per cent of NAV for open ended schemes. There are no such restrictions on unlisted firms currently.

``The panel's proposals are against the interests of the mutual fund industry,'' said a fund manager. Mutual funds had last week approached the SEBI seeking relaxation in the investment norms. MFs were keen that they should be allowed to pick up more stake in a company without attracting the takeover code. On the other hand, individuals and corporate bodies can acquire 15 per cent stake in a company without attracting the takeover code.

``Why should mutual funds be restricted with the 10 per cent limit? MFs should be allowed to invest up to 15 per cent of the capital as like others. If fact, there is no need for any ceiling,'' said a fund manager. ``As of now, good sharesare available in the market. Such restrictions will hinder our operations,'' said another fund manager.

The Sebi panel's proposal for restrictions has come at a time when fund mobilisation by MFs has started shooting up. Mobilisation of funds through this route has jumped by 82.20 per cent to Rs 8,762 crore during the first quarter (April-June) of 1999-2000 from Rs 4,809 crore in the last quarter (January-March) of 1998-99. Redemptions and repurchases by mutual funds have, in fact, fallen to Rs 4,362 crore during April-June 1999 as against Rs 4,364 crore in the previous quarter.

Mutual funds, under the umbrella of the Association of Mutual Funds in India (AMFI), had earlier opposed the Sebi proposal to initiate regulation in investment in unlisted and unrated securities. Sebi wants to regulate the investment limits up to which a mutual fund can make investments in unlisted and untraded securities. However, mutual funds have contended that the decision to invest in unlisted or untraded securities is aninvestment decision by the mutual fund and should not be regulated.