Mumbai: In a bid to provide some relief to mutual funds coping with redemption pressure in the current market scenario, especially the debt segment, the Reserve Bank of India (RBI) on Monday announced a Rs. 50,000 crore Special Liquidity Facility (SLF) for mutual funds.
It may be recalled that last week, Franklin Templeton Mutual Fund (FTMF) shut six of its open-ended schemes, citing heavy redemption pressure from foreign investors, in wake of the corona virus crisis. The total AUM (Assets Under Management) of these six funds was around Rs. 36,000 crore, as per reports.
According to data available on the AMFI website, debt funds have witnessed redemptions in excess of Rs. 2.22 lakh crore in the last two months, with March alone accounting for withdrawals of Rs. 1.94 lakh crore. On the other hand, investors have shown faith in equity, with net inflows of Rs. 22,500 crore in the equity-oriented schemes during the same period.
So even as equity markets have fallen sharply in the backdrop of the global corona pandemic, it seems the debt funds which are bearing the brunt right now amid worries of possible defaults on corporate debt given the non-conducive business environment.
As per today’s RBI announcement, under the SLF-MF, the Central Bank shall conduct repo operations of 90 days tenor at the fixed repo rate.
The SLF-MF window will remain open till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. Funds availed under the SLF-MF shall be used by banks exclusively for meeting the liquidity requirements of MFs by (1) extending loans, and (2) 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 release further added that, liquidity support availed under the SLF-MF would be eligible to be classified as held to maturity (HTM) even in excess of 25 per cent of total investment permitted to be included in the HTM portfolio. Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). Support extended to MFs under the SLF-MF shall be exempted from banks’ capital market exposure limits.
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