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JC - Legal Updates - Norms for AIFs to enter into Credit Default Swaps

Legal Updates

13 Jan 2023

Norms for AIFs to enter into Credit Default Swaps

Brief Overview:

Alternative Investment Funds (“AIFs”) are now permitted to enter into Credit Default Swaps (“CDS”) transactions by their regulator, The Securities and Exchange Board of India.

Technical Details:

1)   Permissibility:

underlying investment in debt securities + only for purposes of hedging

**   for purposes of hedging or otherwise within allowed leverage

*** by earmarking unencumbered Government Bonds/Treasury Bills equivalent to CDS exposure

2)   Reporting: To be done to the custodian by the next working day.

3)   Prior intimation to the unitholders: Any unhedged position, which shall result in gross unhedged positions across all CDS transactions exceeding 25% of investable funds of the scheme of an AIF to be taken only after intimating to all unit holders of the scheme.

4)  Compliance: With the Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022, dated 10th February 2022 and other circulars notified in this aspect.

For further details, please see:


For any queries / clarifications, please feel free to ping us and we will be happy to chat:

●  Ms. Smrithi Nair (smrithi.nair@jclex.com)

●  Ms. Mahak Saboo (mahak.saboo@jclex.com)