RBI has opened special liquidity window of Rs.50,000 crore for mutual funds on Monday. Fund houses have reportedly been facing redemption pressure in debt schemes following closure of six schemes by Franklin Templeton MF.
In a press release, RBI said, “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 contagion effects there from. The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid. 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.”
Fund houses can avail this facility till May 11, 2020. Currently, fund houses are allowed to borrow to the extent of 20% of total AUM to meet redemption pressure.
Experts said that the move would build confidence among investors. Debtguru Joydeep Sen believes that the move would assuage concerns of investors and distribution on debt funds. “Many investors would now feel comfortable holding their debt funds. However, just like the other two special liquidity windows announced by RBI on 2008 and 2013 that went unutilized, AMCs will continue to avoid this facility as most fund houses hold liquid instruments like Collateralized Borrowing and Lending Obligation (CBLO) and repo contracts like Triparty Repo Order Matching Platform (TREPS) to meet redemption pressure.”
