Securities and Exchange Board of India (SEBI) announced the establishment of the Corporate Debt Market Development Fund (CDMDF). This fund, regulated by SEBI, is designed to function as a ‘backstop facility,’ providing support during stressed market conditions by purchasing investment-grade corporate debt securities. The Guarantee Scheme for Corporate Debt (GSCD) aims to offer guarantee cover against debt raised or to be raised by the CDMDF, adding stability to the market in times of dislocation.
Guarantee Scheme for Corporate Debt (GSCD)
- The GSCD provides a complete guarantee cover for debt raised by the CDMDF.
- The primary objective of GSCD is to enhance investor confidence and provide stability to the corporate debt market.
- GSCD is managed by the Guarantee Fund for Corporate Debt (GFCD).
- The GFCD is a trust fund formed by the Department of Economic Affairs (DEA) and managed by the National Credit Guarantee Trustee Company Ltd, which is a wholly owned company of the Department of Financial Services under the Ministry of Finance.
- The scheme is designed to support the purchase of investment-grade corporate debt securities by CDMDF during market dislocation.
- Investment-grade corporate debt securities are bonds or notes issued by companies that have a low risk of default and a good credit rating.
- The guaranteed cover provided by GSCD ensures that investors are protected from potential risks associated with investment-grade corporate debt securities.
- CDMDF’s ability to purchase securities with a guarantee under GSCD enhances secondary market liquidity and supports the overall stability of the corporate debt market.
Corporate Debt Market Development Fund (CDMDF)
- The CDMDF is an alternative investment fund established to address the needs of the corporate debt market in India and it will be launched as a close-ended scheme.
- CDMDF serves as a backstop facility for investment-grade corporate debt securities, providing stability and enhancing investor confidence in the market.
- CDMDF provides a backstop facility of Rs 33,000 crore has been established for Mutual Funds. The government will contribute Rs 30,000 crore, and the Asset Management Companies will provide the remaining Rs 3,000 crore.
- CDMDF aims to enhance secondary market liquidity by creating a permanent institutional framework that can be activated during periods of market stress.
- The fund acts as a safety net for investors during times of market dislocation, providing support and stability to the corporate debt market.