What is CDMDF?
The Corporate Debt Market Development Fund (CDMDF) is a backstop fund for mutual funds in India, recently launched by Finance Minister Nirmala Sitharaman.
The fund is regulated by the Securities and Exchange Board of India (SEBI). With an initial corpus of Rs. 33,000 crore, CDMDF aims to offer a safety net to mutual funds during stressed market conditions by purchasing investment-grade corporate debt securities.
Why was CDMDF Created?
The CDMDF is designed to be a financial cushion during times of market instability. With liquidity often drying up in secondary markets, this fund provides a way for mutual funds to sell their investment-grade corporate bonds. Essentially, it acts as a "lender of last resort" to mutual funds.
How Does CDMDF Work?
Funding: The initial corpus is Rs 3000 crore, contributed by the fixed-income schemes of mutual funds and asset management companies.
Government Guarantee: An additional guarantee of up to Rs 30,000 crore will be provided by the government.
Eligibility: Only certain debt-oriented mutual funds (excluding overnight and gilt funds) can invest.
Lock-in Period: The contributions are locked in until the fund's winding up.
Access: Mutual funds can sell their corporate debt securities to CDMDF in proportion to their contribution to the fund.
Key Benefits
Market Stability: The fund ensures there is a buyer for corporate debt securities even when market liquidity is low.
Redemption: Enables mutual funds to meet redemptions in extraordinary times.
By providing a safety net in stressed conditions, the CDMDF enhances the resilience and stability of India's financial markets.
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