Mutual funds to get Rs 50,000 replenishment from RBI

The mutual fund investors who have been a worried lot recently may now heave a sigh of relief as RBI has announced a special liquidity facility of Rs 50,000 crore to ease liquidity pressures on MFs. It is due to the COVID-19 pandemic there has been much insecurity in capital markets due to heightened volatility which has negatively impacted the MF investors’ sentiments.

The RBI has however ensured to take the necessary steps to mitigate the economic impact of the pandemic and preserve financial stability. To ease liquidity pressures on MFs,  the RBI has decided to open a special liquidity facility for mutual funds of Rs 50,000 crore, according to a statement issued by the central bank.

The decision came after one of the top fund houses in India — Franklin Templeton Mutual Funds on April 24 — decided to shut down six of its debt funds due to liquidity troubles in the bond market triggered by COVID-related issues.

As per the announcement made by the RBI, it will conduct repo operations of 90 days tenor at the fixed repo rate under the facility. Starting from  April 27, 2020, the scheme shall remain available till May 11, 2020, or up to utilisation of the allocated amount, whichever is earlier, according to the circular issued by the RBI.

Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking the outright purchase against the collateral of investment-grade, corporate bonds, commercial papers debentures and certificates of deposits.

Following the collapse of Lehman Brothers, RBI in October 2008 had provided similar additional liquidity support exclusively for the mutual fund industry.