Mutual Funds Gain Flexibility in Credit Default Swaps for Better Risk Management and Enhanced Investment Strategies.

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....The circular allows mutual funds greater flexibility to participate in credit default swaps (CDS), enabling them to buy and sell CDS with adequate risk management. Schemes can buy CDS to hedge credit risk on debt securities held, with exposure not exceeding the debt security exposure. When protected debt security is sold, the CDS position must be closed within 15 working days. Exposure to reference entity or CDS seller, whichever has higher rating, will be considered for single issuer limits. Schemes can sell CDS as part of investment in synthetic debt securities, backed by cash/G-sec/T-bills as cover. Notional CDS exposure is included in issuer/sector limits. Disclosure requirements, valuation guidelines, and overall derivative exposure limits are prescribed. The changes don't constitute a fundamental attribute change for schemes.....