RBI measures to improve returns of debt MF schemes, help liquid schemes

Reserve Bank of India (RBI) Liquidity Boost Measures To Mitigate Impact Of Coronavirus-Induced Economic Downturn Friday Should Improve Mutual Fund (MF) Returns And Help Liquid Regimes Manage Pressure reimbursement.

“This decision will revalue the debt portfolios of existing investors as yields decline,” said Dwijendra Srivastava, chief investment officer – fixed income, Sundaram MF.

Following RBI announcements, domestic yields on ten-year government securities (G-Sec) fell to 6.01% in Friday’s deal.

On Friday, the central bank lowered the repo rate by 75 basis points (bps) to 4.4%. In addition to the rate cut, the central bank has announced that it will conduct targeted term deposit auctions of up to Rs.1 trillion. In addition, the liquidity made available under this window must be deployed by the banks in the form of high-quality corporate bonds, commercial paper and non-convertible debentures.

Banks are required to acquire up to 50% of their additional holdings of eligible instruments from issues on the primary market and the remaining 50% from the secondary market, including from MF and non-bank financial companies.

Industry participants say move will help rupee 5 trillion liquid fund category where high redemptions were expected as businesses sought to dip into liquid investments due to disruptions in daily operations .

Industry experts argue that RBI measures have the potential to reduce the overall cost of funding in the system, as well as helping the economy overcome current challenges.

“The targeted long-term repo facility (LTRO) will help relieve the short-term pressure.” All high quality bonds are hedged, which means that all bonds above the BBB credit can take advantage of this facility and more interest will come in the short term, “said A Balasubramanian, Managing Director and CEO of Birla Sun Life MF.

“The reduction in repo terms means that banks will have to cut rates further and make it easier to pass rates. Overall, the cost of borrowing for individuals and businesses can drop significantly. Allowing a delay in the payment of interest or the reimbursement of the principle will alleviate the pressure on the banks and their postcode and consequently on the rating actions, “he added.


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