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RBI opens Rs. 50,000 cr. liquidity tap for MFs

But banks may remain risk averse

The Reserve Bank of India (RBI) has announced a special window of Rs. 50,000 crore for mutual funds in view of the redemption pressure that the fund houses are facing.

While announcing the window, the RBI said the liquidity stress was limited to high risk debt funds and the larger industry remains liquid.

Under the scheme, the RBI will conduct repo operation of 90 day tenor at the fixed rate repo.

Funds availed under this facility will be used by banks exclusively for meeting the liquidity requirements of mutual funds by extending loans, and for undertaking outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers, debentures and certificates of deposit held by the funds, the central bank said.

Franklin Templeton

The move comes after Franklin Templeton Mutual Fund last week decided to wind up six debt funds that have combined assets under management of nearly Rs. 26,000 crore on account of illiquid and low-rated instruments in its portfolio.

The fund house said it decided to wind up the schemes to preserve the value at least at the current levels. Their value was getting eroded due to a combination of redemption pressures and mark-to-market losses due to a lack of liquidity on account of the coronavirus impact on the markets, it said.

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