Finance Minister Nirmala Sitharaman on Friday inaugurated the Corporate Debt Market Development Fund (CDMDF) and initiated the muhurat trading in the Limited Purpose Clearing Corporation mechanism — AMC Repo Clearing Limited (ARCL).
The objective of both initiatives is to deepen the functioning of the corporate debt markets.
The CDMDF is a Rs 33,000-crore backstop facility for MFs, first mooted in the 2020 Budget, was approved by capital markets regulator Sebi in March.
It will be in the form of an alternative investment fund (AIF), meant to instill confidence among the participants in the Corporate Bond Market during times of stress, as well as to enhance secondary market liquidity. It will enjoy a guarantee from the National Credit Guarantee Trustee.
Corpus for the fund will be created by pooling in money from various debt schemes. This will provide emergency liquidity to AMCs during times of market stress.
A Sebi circular on Thursday stated that debt schemes with the exception of overnight and gilt funds, as well as index funds and ETFs, will contribute 25 bps of their AUM towards backstop facility. Conservative hybrid funds will also contribute. Fund houses will also make a one-time contribution of 2 bps.
Of the Rs 33,000 crore, Rs 30,000 crore will come from the government, while the balance Rs 3,000 crore will be contributed by the AMCs. SBI MF will be managing the fund. It shall be launched as a closed-ended scheme with an initial tenure of 15 years from the date of its initial closing.
The proposal to set up such a fund followed the closure of six schemes by Franklin Templeton in 2020. The six schemes cumulatively had close to Rs 25,000 crore in AUM.
The FM also launched the triparty repo in corporate debt securities offered through ARCL, a limited purpose clearing corporation aimed at widening and deepening the corporate bond market in the country.
“Limited Purpose Repo Clearing Corporation with triparty repo services and central counterparty services of AMC Repo Clearing will widen and deepen the corporate bond repo market,” said the Finance Minister.
AMC Repo has set up a Core Settlement Guarantee Fund, primarily with contributions from issuers of corporate bonds, to provide settlement guarantee in the repo market, which will help eliminate the need for bilateral counterparty exposure limits.
“With the objective of developing the underlying Corporate Bond market in India, AMC Repo, a Limited Purpose Clearing Corporation (LPCC), has been setup by Mutual Funds managing debt AUM. AMC Repo as a market infrastructure institution is focused on creating a market for short-term borrowing against corporate debt securities,” said a press release by ARCL.
The release added that on the day of the launch, the total traded value reported was Rs 480 crore.