Corporate Debt Market Development Fund: How will it work?

economictimes.indiatimes.com:

Corporate Debt Market Development Fund’ (CDMDF) as an institutional framework to enhance secondary market liquidity in the corporate bond market during stressed market situations.Why CDMDF?Investors in India distinctly (and not so fondly) remember the sudden winding up of six debt mutual fund schemes by Franklin Templeton Mutual Fund, resulting in net market redemptions of INR 80,000 crores across all debt schemes. Unlike RBI’s asset purchase programme under the open market operations for purchase of government securities during Covid-19 as a lender of the last resort, bond markets in India were left in the dark without a Carpathia to sail them through the crisis.

In order to further bolster the bond markets in India, both in sickness and health, stakeholders have strongly advocated for the creation of a regulated backstop facility in instances of market dislocation.What is a backstop facility? Generally speaking, a backstop facility is seen as an investor of the last resort. In this context, it is akin to an underwriting arrangement in a secondary market where this safety valve for the debt schemes of MFs shall be triggered where there is a ‘run on the bank’ situation in the debt markets.How will the CDMDF work?

Initial corpus: To be funded by the mutual funds (MFs) having debt oriented schemes and asset management companies (AMCs) up to 0.25% and 0.02% of their respective assets under management. Market dislocation: SEBI has been authorised to identify the triggers of such disruptions causing market dislocation.