Days after Franklin Templeton wound down 6 funds in India, the Reserve Bank of India(RBI) today announced a special liquidity facility worth Rs 50,000 crore for mutual funds(MFs). The move has been taken in a bid to ease liquidity pressures in the mutual fund segment and lift investors’ confidence. The bank cited heightened volatility in capital markets in reaction to the COVID-19 pandemic, which has imposed liquidity strains on MFs.
The market received the news with sharp gains in the morning. 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. The announcement of Rs 50,000 crore Special Liquidity Facility for Mutual Funds (SLF-MF) is a step towards the same.
Under the scheme, the RBI shall conduct repo operations of 90 days tenor at the fixed repo rate. The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays). The scheme is available from today i.e., April 27, 2020, till May 11, 2020, or up to utilization of the allocated amount, whichever is earlier.
Analysts say the RBI move will help mutual funds tide over a severe liquidity strain imposed by the coronavirus pandemic. Under various economic measures to help the economy amidst the pandemic, the Government has so far announced a spending package of Rs 1.7 lakh crore, whereas the central bank has cut key interest rates, and brought in targeted long-term repo operations to ease liquidity in the system. India has reported 26,496 infections and 824 deaths due to the COVID-19 disease till now.
