The Securities and Exchange Board of India (SEBI) has recently made a significant decision to allow mutual funds to buy and sell Credit Default Swaps (CDS) [8dbc9389]. This move comes as part of SEBI's ongoing efforts to expand investment opportunities for mutual funds and enhance their risk management capabilities. By allowing mutual funds to participate in the CDS market, SEBI aims to provide them with a new avenue for hedging credit risks and generating returns [8dbc9389].
CDS is a financial derivative that allows investors to protect themselves against the risk of default on debt instruments. It functions as an insurance contract, where the buyer of the CDS pays a premium to the seller in exchange for protection against a credit event, such as a default or bankruptcy [8dbc9389].
This decision by SEBI is expected to have a significant impact on the mutual fund industry in India. It will enable mutual funds to diversify their investment portfolios and potentially enhance their risk-adjusted returns. Additionally, it will provide investors with access to a wider range of investment options and enable them to manage credit risks more effectively [8dbc9389].