On July 27, 2023, the Securities and Exchange Board of India (SEBI) announced the establishment of the Corporate Debt Market Development Fund (CDMDF). This fund, regulated by SEBI, is designed to function as a ‘backstop facility,’ providing support during stressed market conditions by purchasing investment-grade corporate debt securities. The Guarantee Scheme for Corporate Debt (GSCD) aims to offer guarantee cover against debt raised or to be raised by the CDMDF, adding stability to the market in times of dislocation.
Objective of CDMDF:
The primary purpose of the Corporate Debt Market Development Fund (CDMDF) is to instill confidence among market participants during periods of market stress.
Composition of the Fund:
The working group responsible for establishing the CDMDF included representatives from different mutual funds, the Clearing Corporation of India Limited (CCIL), and the Association of Mutual Funds in India (AMFI). The group recommended the creation of a single ‘entity’ responsible for purchasing corporate debt securities from mutual fund schemes.
Contributions from Mutual Funds:
- Specified Debt-Oriented Mutual Fund Schemes: These include open-ended debt-oriented mutual fund schemes, excluding overnight funds and gilt funds, as well as conservative hybrid funds.
- Initial Contribution: The specified debt-oriented schemes will invest 0.25% (25 basis points) of their assets under management (AUM) in CDMDF units. This contribution, including appreciation, will be locked in until the fund is wound up.
- Increasing Contributions: As the AUM of the specified schemes grows, their contribution to the CDMDF will increase. Contributions will be reviewed every six months.
- Redemption: In case the AUM of the specified schemes reduces, there will be no redemption from the CDMDF.
- Contribution from New Mutual Funds/Schemes: The same contribution rules apply to specified schemes from new mutual funds or existing mutual funds launching new schemes.
- AMCs of mutual funds are required to make a one-time contribution of 2% of the AUM of their specified debt-oriented schemes. The initial contribution will be based on the AUM as of December 31, 2022, in these schemes.
- Penalty for Delayed Contribution: Any delay in contribution will attract a penalty of 15% per annum on the respective AMC for the delayed period, with the interest credited to the CDMDF.
Purchasing Corporate Debt Securities:
- CDMDF’s Role: The CDMDF will purchase listed corporate debt securities from specified debt-oriented mutual fund schemes.
- Trigger and Period: SEBI will determine the trigger and the period during which CDMDF will take action to buy these securities.
- Eligible Securities: CDMDF will buy securities from the secondary market with a remaining maturity period of not more than five years and holding an investment grade credit rating.
- Payment to Sellers: Sellers will receive 90% of the payment in cash and 10% in the form of CDMDF units.
Access to Sell Facility:
- Proportionate Access: Mutual funds can sell corporate debt securities from their contributing schemes’ portfolios to the CDMDF. The access to this sell facility will be proportionate to the mutual fund’s contribution to the CDMDF.
- Scheme Information Document: AMCs will incorporate information about contributing to the CDMDF in their Scheme Information Document by issuing an addendum before initiating the contribution.
The provisions of the circular issued by SEBI are in force with immediate effect.
SEBI – Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI) is the regulatory authority responsible for overseeing the securities market in India. It was established on April 12, 1992, as an independent body to regulate and protect investors’ interests and ensure the orderly development of the securities market.
Here are the key points about SEBI:
Regulatory Authority: SEBI is the primary regulatory body for the securities and capital markets in India. It exercises its powers under the SEBI Act, 1992.
- Investor Protection: One of SEBI’s core objectives is to protect the interests of investors and ensure fair practices in the securities market.
- Regulating Participants: SEBI regulates various market participants, including stock exchanges, brokers, sub-brokers, depositories, custodians, and portfolio managers.
Market Oversight: The board oversees the functioning of the stock exchanges and enforces rules and regulations to maintain market integrity and transparency.
- Madhabi Puri Buch is the current Chairperson of the Securities and Exchange Board of India (SEBI).
- She is the first woman to lead SEBI, making history as the first female chairperson of the regulatory body.
- Additionally, she holds the distinction of being SEBI’s first non-IAS (Indian Administrative Service) chairperson.