The Securities & Exchange Board of India (SEBI), in a circular dated Dec 28, 2018 has allowed mutual fund houses to create segregated portfolios in debt funds in case of credit events to deal with the liquidity risk. However, SEBI has kept it optional for fund houses. The segregated portfolio may be created, in case of downgrade in credit rating at issuer level by a SEBI registered Credit Rating Agency (CRA). In case of difference in rating by multiple CRAs, the most conservative rating shall be considered. The circular has also stated the process for creation of segregated portfolio, valuation and processing of subscriptions and redemptions and necessary disclosure requirement.