Debt fund managers relieved as RBI opens special liquidity window for mutual funds

The mutual fund industry heaved a sigh of relief after the Reserve Bank of India opened a Rs 50,000-crore special liquidity window for the beleaguered industry that has been facing a severe liquidity crisis.

RBI opens Rs 50,000 cr special liquidity facility for Mutual Funds
The mutual fund industry heaved a sigh of relief after the Reserve Bank of India opened a Rs 50,000-crore special liquidity window for the beleaguered industry that has been facing a severe liquidity crisis. There were serious questions about the ability of the industry to handle the redemption pressure it is likely to face after Franklin Templeton Mutual fund, a topper in the debt top debt mutual fund segment, decided to shut six of its debt schemes due to illiquid market conditions, mainly fuelled by the current Covid-19 crisis.

The RBI on Monday said it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability.

  • %Annualized Return for
  • Suggested Investment Horizon
  • N.ATime taken to double money
  • 0.83%Annualized Return for 3 month
  • <3 month Suggested Investment Horizon
  • N.ATime taken to double money
Naturally, debt mutual fund managers were relieved. They believe the RBI commitment would soothe the frayed nerves of investors and the special liquidity facility would also help the industry to meet the immediate redemption requests.


Mahendra Jajoo, Head-fixed income, Mirae Asset, termed the RBI move a good one. "This will definitely improve the sentiment of the market, which was hit by the recent happenings. Sure, the risk is there but the regulator intervenes making a lot of difference," he said.

Jajoo said there was too much redemption pressure in the debt mutual fund space. "RBI saying they will do more is reassuring... a ray of hope.

Lakshmi Iyer, CIO-debt and co-head product, Kotak Mutual Fund, termed the RBI move a confidence building measure. "I hope investors stay calm and understand that their money is being regulated by RBI. If they continue to redeem, RBI might have to step in again. But this is a really really reassuring thing for mutual funds," she said.
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"If there are no selling opportunities, this liquidity will help mutual funds. Investors need to relax and not think that their money is gone. Redemption pressures will be taken care of by RBI but it is not a good option to redeem. Investors shouldn't panic," she added.

Jajoo said investors need to understand that there will always be risk in market-related instruments. "This (RBI SLF-MF) will not reduce the risk."
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