SEBI has introduced the “Corporate Debt Market Development Fund”, a backstop facility for specified debt funds during market dislocations and to prevent recurrences of events such as the one with Franklin Templeton MF.
The Board approved the amendments to set up the backstop facility in the form of an Alternative Investment Fund for the purchase of investment-grade corporate debt securities during times of stress. SEBI chairperson Madhabi Puri Buch said in a press conference that the fund will have a corpus of ₹3,000 crore, of which ₹2,700 crore will come from mutual fund debt schemes. The corporate bond backstop fund will have 10x leverage and a sovereign guarantee.
Not all debt mutual fund schemes will be part of this, and only the participating funds can sell the bonds to the backstop fund.
The move will instill confidence among corporate bond market participants and generally enhance secondary market liquidity. CDMDF, based on a guarantee to be provided by the National Credit Guarantee Trust Company (NCGTC) may raise funds, for the purchase of corporate debt securities during market dislocation.
The contribution will also be made by the specified debt-oriented mutual fund schemes and asset management companies of mutual funds towards building the initial corpus of the CDMDF.
Access to the fund for selling securities during market dislocation will be open to specified mutual fund schemes in proportion to the contribution made to the Fund at a mutual fund level. The Board also approved the framework for triggering of CDMDF’s asset purchases during market dislocation.
AMC of Mutual Funds
SEBI also provided clarity on the roles and responsibilities of Trustees and Boards of Asset Management Companies (AMCs) of Mutual Funds. The regulator has identified specific areas as the core responsibilities of Trustees which shall require an independent evaluation and due diligence by Trustees.
SEBI has made the Board of AMC responsible for protecting unitholders’ interests, in addition to AMC stakeholders’ interests, and will provide for the constitution of a Unitholder Protection Committee by the Board of the AMC with a focus on unitholders’ protection.
SEBI has also strengthened the existing eligibility criteria for sponsors, and introduced an alternative route to enable a diverse set of entities including private equity funds to become sponsors of MFs.
It has also allowed “Self Sponsored AMCs” to continue the mutual fund business, subject to the said AMCs fulfilling certain criteria. This would give the original sponsor flexibility to voluntarily disassociate itself from the MF without needing to induct a new and eligible sponsor.