Corporate Debt Market Development Fund

April 3, 2023

SEBI, the regulatory body for the securities market in India, has recently announced the creation of the Corporate Debt Market Development Fund (CDMDF). It comes in the form of an Alternative Investment Fund (AIF). It will be backstop facility for the purchase of investment grade corporate debt securities in times of stress or in case of market dislocation. The purpose of this fund is to bring about confidence in corporate bond market and boost secondary market liquidity.

Initial Corpus and Contributors

The initial corpus of CDMDF is Rs 3,000 crore, which will be contributed by mutual funds. The proposed fund will be built through contributions from specified debt-oriented mutual fund schemes and asset management companies. The government has also permited a 10x usage of this corpus. This takes the available fund to Rs 33,000 crore.

Guarantees for CDMDF

The additional corpus is guaranteed by the central credit guarantee corporation, and CDMDF itself will be based on a guarantee to be provided by National Credit Guarantee Trust Company (NCGTC). This guarantee will allow CDMDF to raise funds for the purchase of investment grade corporate debt securities during times of stress or market dislocation.

Access to the Fund

Access to the fund will be limited to specified mutual fund schemes in proportion to the contribution made to the fund at a mutual fund level. The SEBI board has approved the framework for triggering CDMDF’s asset purchases during market dislocation.

CDMDF’s Significance

CDMDF is expected to play a significant role in the corporate bond market as it will purchase investment grade corporate debt securities during times of stress or market dislocation. This will not only provide a backstop facility for market participants but also enhance liquidity in the secondary market.

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