Sebi,
A backstop emergency fund of Rs 33,000 crore for debt mutual funds (MFs) has been approved by the Securities and Exchange Board of India (SEBI) to foster investor confidence in the corporate bond market and enhance liquidity in the secondary market.
Named the Corporate Obligation Market Improvement Asset (CDMDF), the drive is intended to assist common assets with holding over the liquidity smash in the obligation market in the event of a significant credit occasion/market disengagement.
Asset management companies (AMCs) will contribute the initial Rs 3,000 crore in funding; When needed, the balance can be borrowed from the market.
“This is a good move. According to DP Singh, Deputy Managing Director of SBI MF, “the fund will provide liquidity to the MF in the event of a credit event to meet the redemption pressure.”
The National Credit Guarantee Trustee Company will provide a guarantee for the fund, which will be established as an Alternative Investment Fund (AIF). The primary stakeholder in the proposed AIF will be SBI MF, the largest asset manager in the country.
The amount of the AMC’s corpus contribution will be proportional to their total loan assets. The contribution of that AMC would be greater the larger the debt schemes.
The selected debt mutual funds will contribute two basis points of their assets under management to the fund, SEBI informed reporters.
“Our model has been made and endorsed by the public authority. “The fund will be activated on the basis of this model and board discussions,” Madhabi Puri Buch, chairperson of the Sebi, stated.
The asset was first visualized in the Association Financial plan.
The regulator will decide whether the fund should intervene in the credit situation. The mutual fund may sell CDMDF debentures to meet the demand from unitholders for redemption once the fund is operational.
The AMC will receive a sum that is proportional to its contribution from this facility. An AMC that has contributed Rs 1,000 crore, for instance, can sell papers worth up to Rs 11,000 crore.
The debt market continues to face difficulties with liquidity. Liquidity shortages have occurred in a number of instances over the years, including Covid-19, the Infrastructure Leasing and Financial Services crisis, and the Dewan Housing Finance Corporation. To pay off unitholders who wish to redeem their units, MF schemes are forced to sell good papers at distressed prices in such a scenario. This drive will take care of that issue by and large,” said Alok Sehgal, administrator and head of Nuwama Pvt. .
Due to the pandemic’s lack of liquidity, Franklin Templeton India MF stopped redemptions from six debt funds in April 2020.
The CDMDF, based on the guarantee provided by the National Credit Guarantee Trustee Company, may raise funds for the purchase of corporate debt securities during market dislocation, SEBI stated in a media release. The Fund “will act as a backstop facility for the purchase of investment-grade corporate debt securities in times of stress, to instill confidence among participants in the corporate bond market and generally to enhance secondary market liquidity.”
