The Securities and Exchange Board of India (Sebi) has approved a Rs 33,000-crore backstop emergency fund “Corporate Debt Market Development Fund (CDMDF)” for debt mutual funds (MFs). The fund was first envisaged in the Union Budget.
- The move aims to help instill confidence in investors in the corporate bond market and also enhance secondary market liquidity.
Key points
- The CDMDF is designed to help MFs tide over instances of liquidity crisis in the debt market in case of a major credit event/market dislocation.
- The initial corpus of Rs 3,000 crore will be contributed by asset management companies (AMCs); the rest may be borrowed from the market as and when required.
- In case of a credit event, the fund will provide liquidity to MFs to meet redemption pressure.
- The fund will be set up in the form of an alternative investment fund (AIF) and will enjoy a guarantee from the National Credit Guarantee Trustee Company.
- SBI MF — the country’s largest asset manager — will be the main stakeholder for the proposed AIF.
- AMCs’ contribution to the corpus will be proportional to their total debt assets. The bigger the size of debt schemes, the higher will be the contribution of that AMC.
- Chosen debt MFs will contribute 2 basis points of their assets under management towards the fund.
- The regulator will decide if the credit situation merits intervention by the fund. Once the fund is pressed into action, MFs can sell debt papers to CDMDF to tackle redemption pressure from unitholders.
- The amount an AMC can avail of from this facility will be proportional to its contribution.
- CDMDF, based on a guarantee to be provided by the National Credit Guarantee Trustee Company, may raise funds, for the purchase of corporate debt securities during market dislocation.
