RBI raises concerns over increase in assets of money market mutual funds

The RBI said MFs showed a marked preference for long-term debt while also holding equity shares.

The Reserve Bank of India has raised concerns on the increase in assets of money market mutual funds (MMMFs) in the past few months. The central bank observed that the infusion of liquidity in the wake of the pandemic had led to a sharp decline in term rates. Even as deposit yields fell, assets under MMMFs have grown, indicative of a search for yield.
 
“Such risk taking among institutional investors, specifically in illiquid investments to earn targeted returns, may lead to build-up of financial vulnerabilities, with adverse implications for financial stability,” the RBI said in its financial stability report