Reserve Bank of India Announces Rs 50,000cr Special Liquidity Facility for Mutual Funds

Reserve Bank of India Announces Rs 50,000cr Special Liquidity Facility for Mutual Funds

The Federal Reserve Bank of India (RBI) today announced an Rs 50,000 crore special liquidity facility to rev up the open-end fund sector, days after Franklin Templeton open-end fund decided to shut its six debt schemes within the wake of the economic uncertainty sparked by Covid-19 pandemic.

In a statement, the RBI said heightened volatility in capital markets in reaction to Covid-19 has imposed liquidity strains on mutual funds (MFs), which have intensified within the wake of redemption pressures associated with closure of some debt MFs and potential contagious effects therefrom.

Reserve Bank of India

The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid, the financial institution said.

"With a view to easing liquidity pressures on MFs, it's been decided to open a special liquidity facility for mutual funds of Rs 50,000 crore," it said.

The Federal Reserve Bank of India also said it'll take necessary steps to mitigate the economic impact of Covid-19 and preserve financial stability, our New Delhi correspondent reports.

India's former minister of finance and senior Congress party leader Palaniappan Chidambaram welcomed the RBI's move.

"I am glad that RBI has taken note of the concerns expressed two days ago and requesting prompt action," he said on Twitter.