State Bank of India (SBI) will set up a trustee company as its wholly-owned subsidiary for managing the Corporate Debt Market Development Fund (CDMDF). 

SBI Funds Management Ltd, where SBI has a 62.53% stake, has been identified as the investment manager-cum-sponsor of the fund. SBI Funds Management Ltd is an asset management company of SBI Mutual Fund.

In a regulatory filing on Tuesday, SBI said it has approved setting up the trustee company as a wholly-owned subsidiary of the bank for managing the fund.

The setting up of the CDMDF, which will be classified as an Alternative Investment Fund, is subject to regulatory approvals.

The fund will act as a backstop facility for purchase of investment grade corporate debt securities to instill confidence amongst the participants in the corporate bond market during times of stress. It will also help enhance secondary market liquidity by creating a permanent institutional framework for activation in times of market stress.

CDMDF will be launched as a close ended scheme with an initial tenure of 15 years from the date of its initial closing (date on which contribution from all AMCs and specified schemes is received by CDMDF), according to SEBI.

Based on the requirements of the corporate bond market, the tenure can be extended with prior approval of the government in consultation with SEBI.

In times of market disruptions, there could be redemption pressure on open ended debt schemes of mutual funds, especially the schemes that hold relatively lower rated papers, and lack of adequate liquidity in the corporate debt market.

During such scenarios, the fund would be helpful in ensuring stability in the market.