MintMoneyMutual FundsPersonal FinanceApril 28, 2020by Monika Halan0Opinion | Bond market woes and RBI’s debt mutual fund rescue

Why the lack of a bond market is a problem created by RBI's dual role as a manager of public debt and market regulator. And how it is RBI that provided a solution in the liquidity hit market on 27 April 2020

On Monday, the Reserve Bank of India (RBI) opened a special window of ₹50,000 crore for mutual funds (MFs) to tide over a liquidity crisis that has shaken investor confidence in one of India’s most popular modes of retail investment. The market had been anticipating it. Mint made a case for RBI aid in a Saturday Quick Edit on Livemint.com. Also, calls arose over the weekend asking for the central bank to do what was done in a similar situation back in 2009. The crisis that erupted late last week involved only debt funds, which had ₹11 trillion in assets under management (half of the MF total); even within the debt segment, the crisis was restricted to schemes with money in bonds that were investment grade but not rated triple-A (supersafe, that is), nor issued by the government (the safest kind). Unusually high redemptions were seen in this sub-category, the result of a mix of events that can be traced to India’s lockdown. There was a surge in demand among MF holders for cash, not just among firms and individuals to make year-end tax payments, but also in response to squeezed inflows. So badly strapped did this leave Franklin Templeton AMC for payout funds, that despite borrowing ₹4,000 crore from banks, this asset management company froze six of its schemes last week and six more after that, trapping the money of its investors.

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