RBI's announcement follows Franklin Templeton Mutual Fund's move to close six debt schemes amid liquidity crunch.
Nippon Life India Asset Management jumped 11.38 per cent and HDFC Asset Management Company gained 5.26 per cent on the BSE.
Other financial stocks also witnessed demand, with ICICI Prudential Life Insurance Company rising 12.20 per cent, Max Financial Services 8.32 per cent, Manappuram Finance 6.86 per cent, HDFC Life Insurance Company 6.84 per cent, The New India Assurance Company 6.53 per cent and Mahindra & Mahindra Financial Services 2.28 per cent.
The BSE Finance index gained 2.09 per cent at close of trade.
"The Indian markets had a promising start to the week largely led by a surge in banking and financial stocks following RBI's liquidity support to the stressed mutual funds," Ajit Mishra, VP - Research, Religare Broking Ltd said.
Shares of RBL Bank advanced 9.16 per cent, IndusInd Bank 6.33 per cent, Kotak Mahindra Bank gained 5.15 per cent, Axis Bank rose by 5.74 per cent, ICICI Bank 3.85 per cent and State Bank of India 0.64 per cent.
The BSE Bank index closed the day with 2.88 per cent gain.In a statement, the central bank said heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds (MFs), which have intensified in the wake of redemption pressures related to closure of some debt MFs and potential contagious effects therefrom.
The stress is, however, confined to the high-risk debt MF segment at this stage and the larger industry remains liquid, it said.
"With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility for mutual funds of Rs 50,000 crore," it said.
Meanwhile, the domestic stock market closed on a positive note with the BSE benchmark index gaining 415.86 points or 1.33 per cent at 31,743.08.
"This is more of a confidence-boosting measure. This should help settle some of the panics that was caused over the weekend over the FT news," said Ashish Shanker, Head of Investments, Motilal Oswal Private Wealth Management. SUM RUJ