Reserve Bank of India announces Rs 50,000cr special liquidity facility for mutual funds

The Reserve Bank of India (RBI) today announced an Rs 50,000 crore special liquidity facility to rev up the mutual fund sector, days after Franklin Templeton Mutual Fund decided to close its six debt schemes in 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 in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom.

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

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

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

India's former Finance Minister 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.