Corporate Debt Market Development Fund

About Corporate Debt Market Development Fund:

• The ‘Corporate Debt Market Development Fund (CDMDF) is a backstop facility for specified debt funds during market dislocations.
• The fund is intended to provide liquidity support in the event of a financial crisis.
• It aims to instil confidence amongst the participants in the corporate bond market and to generally enhance secondary market liquidity.
• The proposed CDMDF will have an initial corpus of Rs 3,000 crore contributed by mutual funds.
• The government has approved a 10-time leverage of the fund (Additional corpus), thus CDMDF may raise funds up to Rs 30,000 crore.
• Contributions to the fund can be done by the specified debt-oriented mutual fund schemes and asset management companies of mutual funds.
• This fund is guaranteed by the National Credit Guarantee Trust Company (NCGTC) and the backstop facility will be managed by SBI Mutual Fund.
• Specified mutual fund schemes will have access to the fund for selling securities during market dislocation.
• This access is proportional to the contribution made to the fund at a mutual fund level.

What is a Backstop facility?

• A backstop is an act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares.
• When a company is trying to raise capital through an issuance, it may get a backstop from an underwriter or a major shareholder, such as an investment bank, to buy any of its unsubscribed shares.

 

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Q1) What is National Credit Guarantee Trustee Company Ltd (NCGTC)?

National Credit Guarantee Trustee Company Ltd (NCGTC) is a private limited company incorporated under the Companies Act 1956 on March 28, 2014, established by the Department of Financial Services, Ministry of Finance, as a wholly owned company of the Government of India, to act as a common trustee company for multiple credit guarantee funds.

Source: Sebi to set up corp debt mkt development fund with Rs 3,000 crore initial corpus from MFs