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:
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