How segregation of toxic assets protects investors

The idea of isolating toxic assets from a debt fund is to protect the rest of portfolio and its investors from the consequences of a downgrade or default in a security. Investors in mutual funds got an added layer of protection when capital markets regulator Securities and Exchange Board of India (Sebi) allowed funds to segregate debt instruments that see a downgrade in credit rating into a separate portfolio. The idea of isolating toxic assets from a debt investment is to protect the rest of the portfolio and its investors from the consequences of a downgrade or default in one security.