Credit Default Swaps

About Credit Default Swaps: 

• It is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor.
• In a credit default swap contract, the buyer pays an ongoing premium similar to the payments on an insurance policy. In exchange, the seller agrees to pay the security’s value and interest payments if a default occurs.
• It can be used for speculation, hedging, or as a form of arbitrage.
• Credit default swaps played a role in both the 2008 Great Recession and the 2010 European Sovereign Debt Crisis.

What are Mutual Funds?

• A mutual fund is a pool of money managed by a professional Fund Manager.
• It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.
• The income / gains generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses and levies.

Q1: What Is the Securities and Exchange Board of India (SEBI)?

The SEBI is a statutory regulatory body established by the Government of India in 1992. It was given statutory powers through the SEBI Act, 1992. Its objective is to regulate the securities market in India and protect the interests of investors in securities.

Source: SEBI allows MFs to sell Credit Default Swaps to boost corporate bond liquidity