IL&FS effect: Mutual funds build liquidity pockets in debt schemes

Risk-aversion and uncertainty over redemptions make MFs turn to CBLO

The mutual funds (MFs), in their bid to deal with the two-fold challenges of tight liquidity and redemption pressure, are shoring up the liquidity buffers within their own debt schemes.  As per the Securities and Exchange Board of India (Sebi) data, the debt schemes’ exposure to the collaterised borrowing and lending obligation (CBLO) market stood at Rs 741 billion, which was 50 per cent higher than previous month. The October exposure levels were the highest seen in nine months in both absolute terms and also as percentage of industry’s overall debt exposure (5.43 per cent).  

The CBLO are overnight instruments,