SEBI opens up the CDS market for MFs

Brief Overview:

Proposal to allow participation of Mutual Funds in credit default swaps (CDS) buying (for all schemes) & CDS selling (for all schemes except overnight and liquid) has been introduced by SEBI.

Technical Details:

Currently MFs are allowed to act only as protection buyers in case of CDS only for fixed maturity plans portfolios.

While RBI allows MFs to act as a protection seller as per the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022, the same was yet to be allowed by SEBI.

SEBI has issued a consultation paper and sought comments from the market participants on providing flexibility to MFs to both buy & sell in the CDS market under a standard framework.

Few other proposals under the framework:

1) total CDS holdings to not cross 10% of a MF’s Assets under Management (AUM).

2) Association of Mutual Funds in India (AMFI) to issue detailed guidelines on valuation & accounting.

Comments on the consultation paper are open till 1st July 2024.

JC takeaway:

This proposal will offer an additional investment products for MFs to manage exposure and optimise their portfolios.

For further details, please see:

Consultation Paper

For any queries/clarifications, please feel free to ping us and we will be happy to chat:

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