Participation of mutual funds in Credit Default Swaps (CDS) Market as Users (“Protection Buyers”) and in repo, in corporate debt securities

Credit default swap participation limited to protection buyers to hedge mutual fund corporate bond risk, with exposure and disclosure conditions.

Mutual funds may participate in CDS only as protection buyers to hedge credit risk on corporate bonds held in Fixed Maturity Plans with tenor over one year; they must buy protection from RBI approved market makers under Master Agreements, limit single counterparty exposure to 10% of scheme net assets, keep cumulative gross exposure (CDS, equity, debt, derivatives) within 100% of net assets, cap total derivative premiums at 20% of net assets, adopt a board and trustee approved written CDS policy with annual review, and make prescribed scheme and scheme wise disclosures in SID, monthly and half yearly reports and annual accounts.