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TMI BlogFlexibility in participation of Mutual Funds in Credit Default Swaps (CDS)X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by Mutual Funds only in the portfolios of Fixed Maturity Plans (FMP) schemes having tenor of more than one year. 2. Reserve Bank of India has issued a revised regulatory framework for CDS on February 10, 2022 Master Direction Reserve Bank of India (Credit Derivatives) Directions, 2022 in order to provide the necessary impetus for the development of CDS market by, inter alia, expanding the base of protection sellers including selling of protection by all major non-bank regulated entities including by Mutual Funds. 3. In view of the above, after taking into consideration the recommendations of the Working Group set up to deliberate on the issue, recommendations of Advisory Committee on Mutual Funds (MFAC), inputs by AMFI and feedback rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overall single issuer limits for the reference entity or seller of CDS, whichever is applicable. In case of same rating for reference entity and seller of CDS, the exposure shall then be considered on reference entity and not on seller of CDS. 12.28.4. MF schemes shall buy CDS only from such sellers that have instruments with lowest long-term rating of investment grade and above. 12.28.5. Schemes may buy CDS for investment grade and existing below investment grade debt securities in the portfolio, if any. Mutual Fund Schemes as seller of CDS 12.28.6. MF Schemes may sell CDS only as part of investment in synthetic debt securities, i.e., sell CDS on a reference obligation covered with Cash/G-Sec/T-bills. Overnight and Liquid schemes shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respective single issuer, group issuer and sectoral limits. Such exposure to the issuer, group and sector of the issuer shall be equal to the notional amount. 12.28.9. For the purpose of computing gross exposure of scheme investing in synthetic debt security, the exposure due to such investment shall be computed as follows: Notional amount (+) Buffer (i.e., cover kept over and above notional amount) 12.28.10. Schemes shall sell CDS only against securities rated investment grade and above. 12.28.11. Credit risk rating of the synthetic debt security shall be same as of reference obligation. For the purpose of Risk-o-meter, liquidity risk value of the synthetic debt security shall be Liquidity Risk Value of reference obligation + 2 12.28.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accounting of CDS by MF schemes based on a waterfall approach, that may be as follows: Level I: Actual Traded levels Level II: Corporate bond credit spreads 5. The relevant changes in the Scheme Information Documents, basis the provisions of this circular, shall not be considered as a Fundamental Attribute Change of the scheme in terms of regulation 18(15A) of SEBI (Mutual Funds) Regulations, 1996 . 6. The provisions of this circular shall come into force with immediate effect. 7. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 , read with the provisions of regulation 43 (1) and regulation 77 of SEBI (Mutual Funds) Regulations, 1996 , to protect the int ..... X X X X Extracts X X X X X X X X Extracts X X X X
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