FinMin invites bids from MFs, AMCs to manage debt exchange-traded fund

The Finance Ministry on Friday invited bids from mutual funds or asset management companies (AMCs) for creating, managing and launching a debt exchange-traded fund (ETF).

In line with the 2018-19 Budget announcement, the Department of Investment and Public Asset Management (DIPAM) came out with a request for proposal (RFP) to engage an AMC for creation and launch of the Debt ETF. Bids have to be submitted by December 17.

In the RFP, DIPAM said central public sector enterprise (CPSE) issuers are one of the most frequent and regularly traded segments of the corporate bond market.

The government is exploring the possibility of creating a debt ETF/fixed income product or a 'Debt ETF', comprising bonds, credit-linked note, debentures, promissory notes as underlying instruments issued by participating CPSEs/PSBs/PSUs.

The proposed Debt ETF may also include government securities (G-Secs), which would be decided at a later date, it added.

The Debt ETF would help these state-run companies and banks help meet the capex and business needs by leveraging their aggregate strength.

"This will bring enhanced liquidity, investors base and transparency and smoothening of borrowing plans of the participating CPSEs / PSBs / PSUs. This will benefit both the investors and the issuers," the DIPAM said.

The AMC would work with the government and the advisors in all aspects of creating, launching and managing the proposed Debt ETF, including all funds from operation (FFO), tap, tranche and additional offerings.

The bidder should be a Sebi-registered mutual fund or AMC having at least 5 years of fund management experience. It should also have experience in debt mutual funds or ETFs or debt assets.

The AMC should have average debt assets under management of at least Rs 150 billion in the July-September quarter.

In India, the corporate bond market constitutes a relatively small size of around 13 per cent in terms of GDP as compared with the government bond market which is around 30.4 per cent in terms of GDP.

The debt market consists of the G-Sec market and the corporate debt market. G-Secs accounts for 79 per cent of the total amount of outstanding bonds in India.