The Securities and Exchange Board of India (SEBI) decided to establish the Corporate Debt Market Development Fund (CDMDF) in the form of an Alternative Investment Fund (AIF) with an initial corpus of Rs 3,000 crore to act as a backdrop facility for the purchase of investment-grade corporate debt securities during times of stress. This decision was made at the SEBI board meeting in March 2023.
- The action is intended to increase secondary market liquidity in general and to encourage optimism among participants in the corporate bond market.
- The Government of India (GoI) has permitted a 10 times utilisation of this corpus, bringing the total available capital to Rs. 30,000 crore, and this new corpus is further guaranteed by the Central Credit Guarantee Corporation.
Corporate Debt Market Development Fund (CDMDF)
i.CDMDF is an initiative aimed to assist mutual funds (MFs) in navigating liquidity issues in the debt market in the event of a large credit emergency or market disruption.
ii.The fund, structured as an AIF, will be backed by the National Credit Guarantee Trustee Company (NCGTC) and will be able to generate funds for the purchase of corporate debt securities during market downturns.
iii.The initial funding of Rs 3,000 crore will be contributed by asset management companies (AMCs), with Rs 2,700 crore coming from MF debt schemes and the remainder borrowed from the market as needed.
- SBI Mutual Fund (SBI MF), India’s largest manager of assets, will be the primary stakeholder of the proposed AIF.
iv.The contributions of AMCs to the corpus will be proportional to their total debt assets, implying that the larger the size of debt schemes, the greater the contribution of that AMC.
- The amount an AMC can receive from this facility will be proportional to its contribution.
Key Points:
i.Access to the fund for selling securities during market disruptions will be restricted to specific mutual fund schemes in proportion to the mutual fund contribution.
ii.Additionally, SEBI approved the framework for the asset purchases made by CDMDF during market downturns.
AMC of Mutual Funds
i.SEBI further clarified the roles and responsibilities of Trustees and Boards of AMCs of MFs and highlighted certain areas as the primary responsibilities of Trustees, which shall need an independent review and due diligence by Trustees.
ii.The Board of the AMC will be required to establish a Unitholder Protection Committee with an emphasis on unitholder protection under SEBI regulations.
iii.The regulations have mandated that the Board of the AMC be responsible for safeguarding the interests of unitholders in addition to those of AMC stakeholders.
iv.It has also permitted “self-sponsored AMCs” to continue in the mutual fund sector, subject to certain conditions.
What is Backstop Facility?
A backstop facility is an act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares.
A company which raises capital through an issuance may get a backstop from a major shareholder, such as an investment bank, to buy any of its unsubscribed shares.
Recent Related News:
i.In March 2023, Angel One Limited (formerly Angel Broking Limited), an Indian stockbroker firm, received in-principle approval from the Securities and Exchange Board of India (SEBI) to sponsor a Mutual Fund.
ii.The company will establish an asset management company and the trustee company in compliance with the SEBI Regulations and other applicable laws.
About Securities Exchange Board of India(SEBI):
Chairperson -Madhabi Puri Buch
Headquarters – Mumbai, Maharashtra
Establishment – 12 April 1992
