RBI's special package for providing liquidity to Mutual Funds - HDFC Securities

Mr. Deepak Jasani - Head of Research, HDFC Securities

The RBI's special package for providing liquidity to Mutual funds will alleviate the fears in the minds of investors and also dissuade many from getting into the redemption mode. It will help stabilize sentiments across debt and equity markets at least for a few days/weeks.

For Mutual funds this will be an additional window for liquidity. However borrowing against investment grade paper for redemption may not be a good idea generally (except occasionally and for a limited period). Also this will do little to halt the NAV hit due to possible downgrade of papers held by the Mutual funds due to the economic slowdown and the resultant sluggishness in economic activity emanating from the pandemic.

For the time being the sentiments may have stabilized, but going by the way the corporate health could deteriorate due to the pandemic, there is some probability that RBI might have to step in again after a few weeks. In the meanwhile investors in debt mutual funds will do well to review the investment by the schemes in which they have invested and in case they feel the need, shift to safer (even if they yield lesser) categories of mutual fund schemes or in extreme cases other safer instruments including Bank FD (subject to limit of Rs.5 lakhs per Bank) or Govt savings schemes.

Source : Equity Bulls

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