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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