The Reserve Bank of India (RBI) has announced a special window of ₹50,000 crore for mutual funds in view of the redemption pressure that the fund houses are facing, the liquidity stress is limited to high risk debt funds and the larger industry remains liquid.
Under the scheme, the RBI will conduct repo operation of 90 day tenor at the fixed rate repo.
Funds availed under this facility will be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of Deposit (CDs) held by MFs, the central bank said.
The move comes after Franklin Templeton Mutual Fund decided to wind up six debt funds that have combined assets under management of nearly ₹26,000 crore on account of illiquid, low rated instruments in their portfolio.
This move will first improve the confidence; second, it can help in providing the necessary liquidity to mutual fund industry if anyone needs to avail it.
The scheme is available from April 27, 2020 till May 11, 2020 or up to utilisation of the allocated amount.
Heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds (MFs), which have intensified in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom.