Mutual fund is an investment fund of a company where investors pool their money to get a good return on their capital, there are 3 types of mutual funds 1- Debt Funds, where the money is invested in fixed interest giving instruments like bonds and govt securities 2- Equity funds, Where the money is invested in share market 3- Hybrid funds, the combination of debt and equity funds.
In 2020, amid the lockdown Franklin Templeton, A mutual fund company in India HQ in California, US decided to write off its 6 debt funds of about 26,000 crores because of lack of liquidity and economic crisis in the country, This was the first instance of such a disturbance in mutual funds and as a consequence it created a sense of insecurity among the investors because Debt funds are regarded as ‘secured and safe investment’ After a week AMFI discussed the situation with RBI and mutual funds governing body i.e SEBI to regain the trust of investors and infuse the liquidity in mutual funds for financial stability, RBI then proposed 50,000 liquidity package for Mutual funds and stated that ‘ The Franklin Templeton has invested in A and AA low rated bonds which were not yielding the desired returns because of the market condition and this led to the closing of the 6 debt funds.
At that time RBI governor Mr Das assured the investors that there is nothing to worry about Mutual funds and things will back to normal after the lockdown.
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