SEBI has allowed mutual funds to buy and sell a new investment product - credit default swaps (CDS). CDS is basically buying insurance by paying a small premium against exposure in a corporate bond. For instance, if an MF holds a corporate bond of XYZ company yielding 7.75% per annum, they can sell CDS against this security by buying insurance by paying a premium of let’s say 0.50 bps. In case of default in this instrument, the insurance company will pay the principal amount along with the interest.
Currently, fund houses are allowed to buy CDS against corporate bonds held by FMPs having maturity of at least a year.
With this, SEBI has now allowed debt funds to buy CDS (all schemes) and sell CDS (except overnight and liquid funds).
This has come into effect with immediate effect.
Here are some key highlights of the new circular on CDS:
MFs as buyer of CDS
MFs can buy CDS purely for hedging their debt securities. Such an exposure should not be added to the gross exposure of the scheme
If the fund manager sells a particular debt which was hedged with CDS, the fund manager will have to close CDS position within 15 days of selling
MFs can buy CDS only from sellers having instruments with lowest long-term rating of investment grade and above
MFs can buy CDS for both investment grade and below investment grade debt securities. This also indicates that MF will be allowed to invest in below investment grade securities only if hedging is available
MFs as seller of CDS
This story is from the October 2024 edition of Investors India.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the October 2024 edition of Investors India.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
Indians are Developing Weak Bones
In India, 1 out of 8 males and 1 out of 3 females suffer from osteoporosis, making India one of the largest affected countries in the world.
"The strategy behind the Tata India Innovation Fund centers on identifying companies that are driving transformative or incremental changes through innovation"
Yes, we certainly believe innovation is a powerful theme with immense potential for the coming years, and we are excited to bring it to our investors.
What is Hybrid Mutual Fund?
Hybrid Mutual Fund is a combination of more than one type of fund. While they invest in shares of companies listed on the exchange, like equity funds.
Should you invest in dynamic bond funds?
Dynamic bond funds have delivered a category average return of 8.68 per cent over the past year, making them the fourth best-performing category, following long-duration funds, constant maturity gilt funds, and gilt funds. With interest rate cuts yet to begin, these funds remain a viable option for investors seeking to benefit from possible rate reductions.
The Multicap Solution to India's MultiDimensional Growth
India is entering a transformative era of economic growth, backed by a unique combination of demographic strength, infrastructure development, and rising global prominence.
The Long-Term Benefit of Investing in Children's Future
A child is the most treasured part of any parent's life, and naturally, we want to give them the best of what the world has to offer. This often means not only ensuring we can meet their needs but also nurturing them to pursue their unique aspirations. Each child has their own dreams and challenges, making the early years critical as they lay the foundation for a healthy and fulfilling future.
ASK THE EXPERT
Ques. One of my friends told me that your company provides detailed Retirement plans. I want to know what is the procedure to get my Retirement plan. I will be retiring in March 2025. R.P Gupta, Noida
How to Naturally Reverse Fatty Liver Disease
The liver, located on the upper-right side of the abdomen, is the body’s largest internal organ and plays a critical role in detoxifying the blood and processing nutrients.
Banking sector which has underperformed in the last two years, now offers a favorable risk-reward profile
Do you think the market is overpriced? Is yes, should investors refrain from investing in index schemes at the current valuation?
India will continue to enjoy benefits of a close US relationship and trade will continue to grow
Q1. The US elections are said to be one of the closest till date, what impact will the election of a Republican / Democratic party have on the US economy and how is that going to affect India in the short as well as the long term?
