Rs 50,000 cr special liquidity for mutual funds to improve investor sentiment about debt market; Read more-

Mumbai, April 28: The Reserve Bank of India on Tuesday announced a Rs 50,000 crore special liquidity facility for mutual fund, days after Franklin Templeton Mutual Fund decided to close six debt schemes. "With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility for mutual funds of Rs 50,000 crore," the statement released by the bank read.

 

In a statement, the central bank further said heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds, which have intensified in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom.

The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid, it added. The Reserve Bank of India (RBI) also stressed it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability.

 

This liquidity facility is on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays). RBI’s liquidity initiative is slated to ease pressure and help mutual funds to finance the redemption using this facility rather than selling existing papers at a discount and denting its Net Asset Value. This measure also is capable of stabilizing the performance of short-term debt funds and improve investor sentiment about the debt market.