Rules on new fund for debt mkt aim to lift liquidity, confidence

livemint.com:

New Delhi: Markets regulator Securities and Exchange Board of India(Sebi) on Thursday issued a framework for the Corporate Debt Market Development Fund (CDMDF). This comes after Sebi notified the rules for setting up such a fund in the form of an Alternative Investment Fund (AIF) which will support markets by buying debt securities during times of financial stress. In the 12-page circular, Sebi said this fund will help in instilling confidence among the participants in the corporate bond market and generally enhance secondary market liquidity by creating a permanent institutional framework for activation in times of market stress.

Separately, Sebi also issued another circular on investment of mutual funds and asset management companies (AMCs) in the said CDMDF. According to the circular, contributions from specified debt-oriented mutual fund schemes and AMCs including profits, if any, will be locked in till winding up of the fund. Such debt MFs will invest 25 basis points (bps) of their assets under management (AUM) in the units of CDMDF.

Further, such schemes will provide additional incremental contributions to CDMDF as the AUM increases, every six months. However, if AUM decreases, there would be no return or redemption from CDMDF. “AMCs shall make a one-time contribution equivalent to 2 bps of the AUM of specified debt-oriented MF Schemes managed by them.