New Delhi: Capital markets regulator Sebi on Friday proposed allowing greater flexibility to mutual funds (MFs) in buying and selling investment product Credit Default Swaps (CDS) in a bid to further develop debt market in the country.

Under the current framework, mutual funds are permitted to participate in CDS transactions only as users -to buy credit protection only to hedge the credit risk on corporate bonds held by them. Furthermore, this transaction can be undertaken by mutual funds only in the portfolio of Fixed Maturity Plans (FMP) schemes with a tenor of more than one year. In its consultation paper, the regulator has suggested to permit participation of mutual funds in CDS buying for all schemes as well as CDS selling for all schemes except Overnight and Liquid.

The proposal came after Reserve Bank of India (RBI) on February 10, 2022, specified the revised regulatory framework for CDS to further develop the debt market in the country.