Capital markets regulator Securities and Exchange Board of India (SEBI) has issued detailed guidelines on the Corporate Debt Market Development Fund (CDMDF).

The fund will act as a backstop facility for purchase of investment-grade corporate debt securities, to instil confidence amongst the participants in the Corporate Debt Market during times of stress. The fund is also expected to enhance secondary market liquidity by creating a permanent institutional framework for activation in times of market stress.

Specified debt-oriented mutual funds will have to contribute 25 basis points (bps) of their assets under management in the units of the fund. These MF schemes exclude Index funds and ETFs.

"The specified MF schemes shall provide additional incremental contribution to CDMDF as their AUM increases, every six months to ensure 25 bps of scheme AUM is invested in units of CDMDF. However, if AUM decreases there shall be no return or redemption from CDMDF," the market regulator says.

New schemes from existing MFs under the specified categories or such schemes of new MFs shall also contribute 25 bps of their respective AUM and make incremental contributions, it adds.

The Mutual Fund Advisory Committee (MFAC) of SEBI had constituted a working group consisting of representatives of various mutual funds, Clearing Corporation of India Ltd and Association of Mutual Funds in India (AMFI) with the objective of developing the corporate debt market from the perspective of mutual funds.

CDMDF shall be launched as a close-ended scheme with an initial tenure of 15 years (extendable) from the date of its initial closing, the date on which contribution from all AMCs and specified schemes is received by CDMDF, the markets regulator says.

AMCs shall make a one-time contribution equivalent to 2 basis points of the AUM of specified debt-oriented MF Schemes managed by them, says SEBI. AMCs of new Mutual Funds shall also make a one-time contribution equivalent to 2 basis points of their specified debt-oriented MF schemes, based on the AUM at the end of the financial year following the one in which the specified schemes are launched, the watchdog adds.

"AMFI shall calculate and inform contribution to be made by each MF Scheme and AMC, to CDMDF and the AMCs. The initial contribution shall be made within 10 working days of request from CDMDF. The half-yearly contributions shall start from December 2023 onwards, which shall be made within 10 working days from end of each half year," it says.

In case of delay in contribution by mutual fund schemes and AMCs, the respective AMCs shall be liable to pay interest at 15% per annum for the period of delay, says SEBI.

During market dislocation, the securities purchased by CDMDF would be from the secondary market, having investment grade credit rating and residual maturity not exceeding 5 years on the date of purchase, the regulator says.

CDMDF shall not buy any unlisted or below investment grade or defaulted debt securities or securities in respect of which there is a material possibility of default or adverse credit news or views, it says.

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