Finance Ministry Invites Bids From Mutual Funds To Manage Debt ETF

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

In line with the 2018-19 Budget announcement, the Department of Investment and Public Asset Management came out with a request for proposal to engage an asset management company for creation and launch of the debt exchange-traded fund. Bids have to be submitted by Dec. 17.

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 public sector companies, including banks, according to the department. The proposed Debt ETF may also include government securities, which would be decided at a later date, it added.

The Debt ETF would help these state-run companies and banks meet the capex and business needs by leveraging their aggregate strength, the department said in the request for proposal. “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 asset manager would work with the government and the advisers in all aspects of creating, launching and managing the proposed Debt ETF, including all funds from operation, tap, tranche and additional offerings.

The bidder should be a SEBI-registered mutual fund or asset manager having at least five years of experience. It should also have experience in debt mutual funds or ETFs or debt assets.

The asset management company should have average debt assets under management of at least Rs 15,000 crore in the July-September quarter.

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

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