RBI announces Rs. 50,000 crore special liquidity facility to Mutual funds

The Reserve Bank of India (RBI) has announced a Special Liquidity Facility of Rs. 50,000 crores for Mutual Funds (SLF-MF) to ease the liquidity strains on mutual funds (MFs) that has cropped up because of the heightened volatility in the capital markets due to the ongoing COVID-19 pandemic.

The RBI in a Press Release stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability.

According to the Press Release, the RBI shall conduct repo operations of 90 days tenor at the fixed repo rate under the SLF-MF. Banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays). The scheme is available from April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier.

The RBI will review the timeline and amount, depending upon market conditions.

The Press Release further states that funds availed under the SLF-MF has to be used by banks exclusively for meeting the liquidity requirements of Mutual Funds (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 move by RBI comes as a breather for mutual fund investors and has lifted investors’ confidence.

On April 23, US based Franklin Templeton Mutual Fund wound up six of its funds in the country citing market volatility and liquidity troubles.