If fund house takes a hit, your mutual fund will too get affected. Here’s how

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If fund house takes a hit, your mutual fund will too get affected. Here’s how
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Market regulator Securities and Exchange Board of India (SEBI) has issues a new set of rules, allowing investors to redeem only up to Rs 2 lakh from a mutual fund (MF) scheme in case the fund house faces systemic crisis. Other than this, the fund houses are also allowed to impose restrictions on redemptions only if either there is a systemic crisis or in case something severely constricts market liquidity.

The move has come after the redemption crisis that JP Morgan faced last September, in two of its schemes involving Amtek Auto.

As per SEBI’s latest note, the changes come into effect immediately for new schemes launched now onwards, while the existing ones would get the changes from July 1st. The note says that an asset management company (AMC) can impose restriction only in case of broad liquidity issues, which lay an effect on "almost all securities rather than any issuer specific security," in case of market failures or exchange closures or under exceptional operational problems.

Also, these restrictions can be imposed only for a maximum 10 working days after taking prior approval from its board and trustees.

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If investors request for redeeming more than Rs 2 lakh, fund houses would have to redeem the first Rs 2 lakh without any restrictions after which the remaining part would be subject to the restriction.

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