The Reserve Bank of India on Tuesday allowed the mutual funds to raise funds against the certificate of deposits, a move that will help the MFs tide over liquidity problems.

"It has been decided to relax these (guidelines for issuance of CDs) restrictions on lending and buyback, for a period of 15 days. . .only in respect of CDs held by mutual funds," the central bank said in a notification.

The decision follows the announcement of the RBI to enable banks and primary dealers raise Rs 20,000 crore (Rs 200 billion) through repo route to help the mutual funds industry tide over the liquidity crisis and withstand the redemption pressure.

RBI allows banks and financial institutions raise funds by issuing CDs to various entities including MFs for a period ranging from seven days to three years. Banks and financial institutions, however, are not allowed to grant loans against CDs or buyback CDs before maturity.

In the backdrop of the redemption pressure being faced by the MF industry, RBI relaxed the CD guidelines allowing the MFs to seek loans against CDs or surrender them to be banks before maturity.

The relaxation, RBI said, would be subject to the Sebi (Mutual Funds) Regulations according to which "a mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders."