CIRCULAR
SEBI/HO/IMD/PoD2/P/CIR/2023/129 July 27, 2023
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Trustee Company of CDMDF/
Association of Mutual Funds in India (AMFI)
Sir / Madam,
Subject: Investment by Mutual Fund Schemes and AMCs in units of Corporate
Debt Market Development Fund
1. With the objective of development of the corporate debt market from the
perspective of Mutual Funds, the Mutual Fund Advisory Committee (MFAC) of
SEBI had constituted a Working Group consisting of representatives of various
Mutual Funds, Clearing Corporation of India Limited (CCIL) and AMFI for
detailed deliberation. The Working Group inter-alia recommended creation of an
entity to buy corporate debt securities from MF schemes with support from
Government of India.
2. Based on consultation with various stakeholders and as proposed as part of the
Union Budget 2021-22, Chapter III-C has been inserted in SEBI (Alternative
Investment Funds) Regulations, 2012 vide Gazette notification no. SEBI/LAD-
NRO/GN/2023/132 dated June 15, 2023 and regulation 43A has been inserted
in SEBI (Mutual Funds) Regulations, 1996 vide Gazette notification no.
SEBI/LAD-NRO/GN/2023/134 dated June 26, 2023 to facilitate constitution of
Corporate Debt Market Development Fund (“CDMDF” or “the fund”), as a
backstop facility for purchase of investment grade corporate debt securities, to
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instil confidence amongst the participants in the Corporate Debt Market during
times of stress and to generally enhance secondary market liquidity by creating
a permanent institutional framework for activation in times of market stress.
Further, Guarantee Scheme for Corporate Debt (GSCD) was notified by Ministry
of Finance vide notification no. G.S.R. 559(E) dated July 26, 2023, which
includes the Framework for Corporate Debt Market Development Fund.
3. CDMDF shall be launched as a close ended scheme with an initial tenure of 15
years (extendable) from the date of its initial closing (date on which contribution
from all AMCs and specified schemes is received by CDMDF).
4. Accordingly, the following has been decided:
4.1. The units of CDMDF shall be subscribed by AMCs of Mutual Funds and
“specified debt-oriented MF Schemes” (i.e., Open ended Debt oriented
Mutual Fund schemes excluding Overnight funds and Gilt funds and
including Conservative Hybrid funds). Contribution from specified debt-
oriented MF schemes and AMCs, including the appreciations on the same,
if any, shall be locked-in till winding up of the Fund. However, in case of
winding up of contributing MF Schemes, inter-scheme transfers within the
same Mutual Fund or across Mutual Funds may be undertaken.
Clarification: Specified debt-oriented MF schemes exclude Index funds and
ETFs. Further, the Gilt funds as mentioned above shall mean both Gilt Fund
and Gilt Fund with 10 year constant maturity.
4.2. Specified debt-oriented MF Schemes shall invest 25 bps of their Assets
Under Management (AUM) in the units of CDMDF. The specified MF
schemes shall provide additional incremental contribution to CDMDF as their
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AUM increases, every six months to ensure 25 bps of scheme AUM is
invested in units of CDMDF. However, if AUM decreases there shall be no
return or redemption from CDMDF. New schemes from existing MFs under
the specified categories or such schemes of new MFs shall also contribute
25 bps of their respective AUM and make incremental contribution.
4.3. AMCs shall make a one-time contribution equivalent to 2 bps of the AUM of
specified debt-oriented MF Schemes managed by them. Further, AMCs of
new Mutual Funds shall also make a one-time contribution equivalent to 2
bps of their specified debt-oriented MF schemes, based on the AUM at the
end of the financial year following the one in which the specified scheme(s)
are launched.
4.4. The initial contribution, as mandated above shall be based on AUM of the
specified MF schemes as on December 31, 2022.
4.5. AMFI shall calculate and inform contribution to be made by each MF Scheme
and AMC, to CDMDF and the AMCs. The initial contribution shall be made
within 10 working days of request from CDMDF. The Half-yearly
contributions shall start from December 2023 onwards, which shall be made
within 10 working days from end of each half year.
4.6. In case of delay in contribution by Mutual Fund Schemes and AMCs, the
respective AMCs shall be liable to pay interest at fifteen percent (15%) per
annum for the period of delay. Such interest shall be credited to the fund of
CDMDF.
4.7. In times of market dislocation, CDMDF shall purchase listed corporate debt
securities from the specified debt-oriented MF schemes. The trigger and
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period for which the Backstop Facility will be open shall be as decided by
SEBI.
Clarification: Corporate debt securities include listed money market
instruments for the above purpose.
4.8. During market dislocation, the securities purchased by CDMDF would be
from secondary market, having investment grade credit rating and residual
maturity not exceeding 5 years on the date of purchase. CDMDF shall not
buy any unlisted or below investment grade or defaulted debt securities or
securities in respect of which there is a material possibility of default or
adverse credit news or views. As a principle, CDMDF shall buy at a fair price
(adjusted for liquidity risk, interest rate risk and credit risk) but not at distress
price. The utilization of such facility by specified debt-oriented MF schemes
shall be voluntary.
4.9. The sellers of debt securities shall be paid 90% of the consideration in cash
and 10% in terms of units of CDMDF. Such units paid as consideration
(different class of units than units allotted in lieu of contribution made) shall
bear the risk of first loss, if any to CDMDF, and can be redeemed during the
tenure of scheme, subject to certain conditions.
4.10. Access to the fund: The respective Mutual Funds shall have access to sell
corporate debt securities during market dislocation, held in the portfolio of
contributing schemes, to the CDMDF. Access to the Fund shall be in
proportion to the contribution made to the Fund at a Mutual Fund level (i.e.,
in the ratio of total units of CDMDF held by all specified debt schemes of
each Mutual Fund).
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5. Further, the following has been decided in respect to investment of Mutual Fund
Schemes in CDMDF:
5.1. Corporate debt securities sold by MF schemes to CDMDF during market
dislocation shall be treated as trade executed on Request for Quote (RFQ)
platform.
5.2. In case Net Asset Value of CDMDF units is not available by 9:30 PM, NAV
declaration timing for Mutual Fund Schemes holding units of CDMDF shall
be 10 am on next business day instead of 11 pm on same day.
5.3. It is clarified that the CDMDF shall not be considered as an “associate” of
any Mutual Fund and investment made in units of CDMDF in accordance
with this circular shall not be considered as investment in associate or group
company of any Mutual Fund.
5.4. AMCs shall ensure that the net worth as prescribed under Regulation
21(1)(f) of SEBI (Mutual Funds) Regulations, 1996 shall be maintained over
and above the contribution made towards CDMDF.
5.5. The calculations of Potential Risk Class (PRC) Matrix, Risk-o-meter, Stress
testing and Duration for various purposes shall be done after excluding
investments in units of CDMDF. Further, the investments in CDMDF units
shall not be considered as violation while considering maturity restriction as
applicable for various purposes.
5.6. The relevant changes in the Scheme Information Document shall be
incorporated by AMCs by way of issuing an addendum prior to contributing
to CDMDF. Such changes shall not be considered as a Fundamental
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Attribute Change of the scheme in terms of regulation 18(15A) of SEBI
(Mutual Funds) Regulations, 1996.
6. The provisions of this circular shall come into force with immediate effect.
7. This circular is issued in exercise of powers conferred under Section 11 (1) of
the Securities and Exchange Board of India Act, 1992, read with the provisions
of regulations 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the
interest of investors in securities and to promote the development of, and to
regulate the securities market.
8. This Circular is available at www.sebi.gov.in under the link “Legal > Circulars”.
Yours faithfully,
Lakshaya Chawla
Deputy General Manager
Tel no.: 022-26449369
Email: lakshayac@sebi.gov.in
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