India's markets regulator has allowed mutual funds to both buy and sell credit default swaps (CDSs) under certain conditions, it said in a circular on Friday, in a bid to drive up liquidity in the corporate bond market.

Mutual funds are allowed to buy and sell credit default swaps to increase liquidity in the corporate bond market.

The market regulator has cleared the way for mutual funds to sell credit default swaps (CDS), under specific conditions.

Credit Default Swaps are financial contracts that act as a form of insurance against the default of a borrower. In the context of mutual funds, CDS allow funds to manage and mitigate credit risk associated with the bonds or debt securities they hold.

The Securities and Exchange Board of India (Sebi) on Friday allowed mutual funds to participate as both buyers and sellers in the credit default swap (CDS) segment, providing greater flexibility to boost liquidity in the corporate bond market.