MFs entry into CDS transactions
Before undertaking CDS transactions, mutual funds need put in place a written policy on participation in CDS approved by the Board of the Asset Management Company and the Trustees.
In addition, Sebi said mutual funds are allowed to participate in repo in corporate debt securities.
In repo transactions, also known as a repo or sale repurchase agreement, securities are sold with the seller agreeing to buy them back at later date. The instrument is used for raising short-term capital.
The repurchase price should be greater than the original sale price, the difference effectively representing interest.
"In order to encourage growth of the corporate bond market, it has been decided that base of eligible securities may be expanded, for mutual funds to participate in repo in corporate debt securities, from AAA rated to AA and above rated corporate debt securities," Sebi said.
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