Sebi Proposes Greater Flexibility for Mutual Funds in CDS Transactions

The Securities and Exchange Board of India (Sebi) proposed allowing mutual funds greater flexibility in buying and selling Credit Default Swaps (CDS). Under current rules, mutual funds can only buy CDS to hedge credit risk on corporate bonds. The new proposal includes permitting mutual funds to both buy and sell CDS, with specific exclusions.

The Securities and Exchange Board of India (Sebi) has announced a proposal to grant mutual funds greater leeway in engaging with Credit Default Swaps (CDS) as part of their investment strategies. Currently, mutual funds are restricted to buying CDS only for hedging credit risk on corporate bonds.

In a recent consultation paper, the regulator suggested extending these permissions, allowing mutual funds to buy CDS across all schemes and to sell CDS in all but Overnight and Liquid schemes. This move aims to invigorate the debt market, following the Reserve Bank of India's revised regulatory framework introduced on February 10, 2022.

The regulator has opened the floor for public comment on this proposal until July. If realized, this initiative could markedly expand the landscape of CDS transactions, offering mutual funds enhanced tools for managing credit risk.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)