The Reserve Bank of India, in a bid to ease liquidity pressures on mutual funds, announced on Monday 50 thousand crore rupees Special Liquidity Facility for mutual funds. The RBI stated that the coronavirus lockdown has “heightened volatility in capital markets” and has imposed liquidity strains on mutual funds. However, the RBI added that the stress at this stage is confined only to the high-risk debt mutual fund segment and “the larger industry remains liquid”.
In a big relief for mutual fund investors, the Reserve Bank of India on Monday announced a special liquidity facility (SLF-MF) of Rs 50,000 crore with a view to ease liquidity pressures on mutual funds which have cropped up as a result of heightened volatility in capital markets due to the Covid-19 pandemic.
“The RBI has stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of Covid-19 and preserve financial stability. 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 central bank said in a statement.
Under the facility, the RBI shall conduct repo operations of 90 days tenor at the fixed rate. Banks can submit their bids to avail funding on any day from Monday to Friday excluding holidays, the RBI said.
“The scheme is available from April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier,” the circular added.
Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by extending loans, and undertaking outright purchase of repos against the collateral of investment grade corporate bonds, commercial papers (CPs), debentures and certificates of deposit (CDs) held by MFs.
The decision came after one of the top fund houses in India — Frankiln 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.