SEBI Approves Setting Up Rs 33,000-Crore Rescue Facility For Debt Mutual Funds

SEBI has approved the setting up of the corporate debt market development fund—an alternative investment fund that will act as a backstop facility for investment-grade corporate debt from specified mutual fund schemes during times of stress.

The decision was taken at the Securities and Exchange Board of India's latest board meeting, which concluded on Wednesday.

"CDMF, based on a guarantee to be provided by National Credit Guarantee Trust Company, may raise funds for purchase of corporate debt securities during market dislocation," it said in a notification.

The market regulator also approved amendments to the existing regulations to allow for the creation of the initial corpus of the backstop fund through contribution by specified debt mutual fund schemes and asset management companies.

The backstop facility will be managed by SBI Mutual Fund, SEBI Chairperson Madhabi Puri Buch said at a press conference after the board meeting.

The initial corpus of the fund will be Rs 3,000 crore, which will contributed by asset management companies, Buch said. "The government has approved a 10-time leverage, so (that’s) Rs 30,000 crore. This will be guaranteed by the NCGTC, which is basically the government’s guaranteeing arm; so it will be sovereign guarantee."

"Access to the fund for selling securities during market dislocation shall be to specified mutual fund schemes in proportion to the contribution made to the fund at a mutual fund level," the regulator said. Buch said the only contributors to the fund would be able to access it in times of trouble and the amount they can draw will depend on their contribution.

This means that if a mutual fund contributes 10% to the Rs 3,000 crore corpus, it will be able to draw a maximum of 10 times that amount if the need arises.

The fund is intended to provide liquidity support in the event of a financial crisis along the lines of what took place in 2008.