Last week US-based Franklin Templeton Mutual Funds close its six debt schemes. And the Reserve Bank of India on Monday 27th of April 2020 has announced a ₹ 50,000 crore special liquidity facility for Mutual Funds among heightened volatility in Capital Markets in reaction to COVID-19.
These six schemes are:
- Franklin India Low Duration Fund (FILDF)
- Franklin India Dynamic Accrual Fund (FIDAF)
- Franklin India Credit Risk Fund (FICRF)
- Franklin India Short Term Income Plan (FISTIP)
- Franklin India Ultra Short Bond Fund (FIUSBF)
- Franklin India Income Opportunities Fund (FIIOF)
The scheme is available from April 27, 2020 till May 11, 2020 or up to utilization of the allocated amount, whichever is earlier. The Reserve Bank will review the timeline and amount, depending upon market conditions.
The Central Bank said in a statement on Monday that, “Heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on Mutual Funds (MFs), which have intensified in the wake of redemption pressures related to the closure of some debt MFs and potential contagious effects therefrom.”
In also addition, the Central Bank said that “With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility for Mutual Funds of ₹ 50,000 crore.”
Under the effective special liquidity facility scheme, the RBI will conduct repo operations of 90 days tenor at the fixed repo rate. RBI said from Monday to Friday on any day under the facility banks can submit their bids to avail funding.
RBI said that “The banks can use the available funds under the scheme for meeting the requirement in the liquidity of Mutual Funds by extending loans, undertaking the purchase of repo against the collateral of investment-grade Commercial Papers (CPs), debentures and corporate bonds held by Mutual Funds.”
According to Nimesh Shah (MD and CEO of ICICI Prudential MFs), the confidence amid investors will increase following the RBI move.
Shah said that “The only people need to see is quality of the portfolio. If my portfolio is not of the right quality, I would not get liquidity whatever I do. RBI’s move will give a lot of confidence to investors”.
According to RBI “Exposures under this facility will not be reckoned under the Large Exposure Framework (LEF). The face value of securities acquired under the scheme and kept in the Held to Maturity (HTM) category will not be reckoned for computation of Adjusted Non-food Bank Credit (ANBC) for the purpose of determining priority sector targets.”
With the support extended to MFs under the Special Liquidity Facility for Mutual Funds (SLF-MF) shall be exempted from the bank’s capital market exposure limits.
RBI said that “The SLF-MF is on-tap and open-ended, and banks can submit their bids to avail funding on any day from Monday to Friday (excluding holidays)”.
RBI also notify in its statement that “The liquidity support availed under the scheme will be eligible to be classified as held to maturity even in excess of 25 percent of total investment permitted to be included in the HTM portfolio.”
Franklin Templeton Mutual Fund closed up its six debt schemes, which is a bad dream for Franklin Templeton debt funds investors.
Investors who put their earned money in supposedly safe debt funds now they do not know what’ll happen with their investments.
Hence, the RBI and SEBI had assessed the overall situation trigged by Franklin Templeton’s decision during the weekend. And announced a ₹ 50,000 crore special liquidity facility for Mutual Funds among heightened volatility in capital markets in reaction to COVID-19.