Yesterday, the Reserve Bank of India announced special liquidity of Rs 50,000 crore to provide support to mutual funds by providing them liquidity for any major redemptions. The funds are going to be available through banks, under repo operations. The step taken by the RBI is to prevent a likely sell-off in the mutual fund industry after Franklin Templeton Mutual Fund closed its six funds last week. It is a type of loan that can be taken by mutual fund companies to fulfill the request for redemption coming to them.
Its availability will be from 27 May to May 11. Mutual Funds can apply under the bidding process through banks. In simple words, we can say that it is a loan against the fund. The RBI also issued this special liquidity in 2008-09, but it was not used much by mutual fund companies at that time. This is a good move by RBI which will help in maintaining the trust of mutual fund investors in the industry.
Last month, the Reserve Bank of India had provided an additional 50,000 crores through LTRO to provide liquidity to small finance banks, NBFCs, and mutual funds. It proves that the Reserve Bank of India is conscious of the health of mutual funds and is ready to take appropriate steps to support them at any time.