RBI launched a 50,000 Crore INR Liquidity Window to support Mutual Funds

The RBI has announced a special liquidity window of 50,000 crore INR for mutual funds in light of Franklin Templeton closing down 6 of its debt funds due to lack of liquidity.

High Risk Mutual Fund

Mutual funds are investment vehicles where money is pooled from several investors and invested in various securities by a professional money manager with the aim of earning capital gains for the investor. A high risk mutual fund is one which has potential for paying high dividends. However, these require active and thorough monitoring as these are very volatile and come with high risks.

About the RBI Initiative

The RBI had announced a 50,000 crore INR liquidity window for mutual funds after the Franklin Templeton incident (6 debt funds were closed down due to low liquidity). The initiative is aimed at relieving the pressure on MFs due to low liquidity and help them finance their redemptions. The RBI held that this stress is confined to the high-risk debt mutual funds segment.

Working

Under this initiative, RBI will lend funds to banks at low rates to be used exclusively for meeting the liquidity demands of MFs. The banks can lend loans to MFs, undertake outright purchase of and/or repos against the collateral of investment grade corporate bonds, commercial papers, debentures and certificates of deposit held by MFs. RBI will be conducting repo operations (at a fixed rate) of 90 days tenor.

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