The Securities and Exchange Board of India (Sebi) has permitted mutual funds to sell credit default swaps (CDS), expanding their role in these transactions beyond merely purchasing protection to hedge against credit risk. This development, outlined in a circular dated September 20, 2024, is intended to provide mutual funds with an additional investment avenue and enhance liquidity in the corporate bond market. Previously, mutual funds could only engage in CDS transactions as buyers for risk mitigation within fixed maturity plan portfolios. This regulatory shift follows adjustments made by the Reserve Bank of India aimed at bolstering the CDS market by involving more protection sellers, including mutual funds.