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In a recent circular, SEBI has stated that AMCs and specified debt schemes can subscribe for units of Corporate Debt Market Development Fund (CDMDF). These schemes include open-ended schemes, excluding overnight funds, gilt funds (gilt fund and gilt fund with 10 year constant maturity), index funds, ETFs and including conservative hybrid funds.
CDMDF is an AIF that will buy investment grade corporate debt securities during stressful times to instil confidence amongst market participants and enhance liquidity.
SEBI has also laid down other guidelines for investment by MFs and AMCs in the said circular. While here are the key highlights, you can view the circular here.
- Investments and appreciations thereon are subject to lock-in till the fund is wound up
- In the case of winding up of contributing MFs, inter-scheme transfers within the same MF or across MFs may be undertaken
- MFs to invest 25 bps of AUM as on December 31, 2022 in CDMDF and ensure the same every six months
- AMCs to make one-time contribution of 2 bps of AUM as on December 31, 2022 of specified debt schemes they manage
- Failure to make timely contributions by MFs and AMCs to attract annual interest of 15% p.a.
- CDMDF to purchase corporate debt securities (including listed money market instruments) from specified debt schemes during market dislocation
- Purchase by CDMDF to be from secondary markets having investment grade credit rating and residual maturity of less than five years
- MFs to have access to sell corporate debt securities to CDMDF subject to certain conditions
These provisions shall be applicable from immediate effect.
In a separate circular, the regulator also defined a framework for CDMDF.
- CDMDF to comply with Guarantee Scheme for Corporate Debt
- The fund should deal only with specified securities during normal times. These include low duration government securities, treasury bill, tri-party repo on g-sec and guaranteed corporate bond repo with maturity not exceeding 7 days
- Charge fees of 0.15%+tax of portfolio value on daily pro-rata basis, during normal times
- Charge fees of 0.20%+tax of portfolio value on daily pro-rata basis, during market stress
- Follow fair pricing document and loss waterfall accounting
The circular also carries guidelines pertaining to NAV disclosure and trade settlement of corporate debt securities bought by CDMDF. Click here to view the circular.
