The past few months have brought a lot of cheer to Mutual fund investors. After the guidelines by the Securities and Exchange Board of India (SEBI) to Fund Houses to disclose details relating to the remuneration of managers for transparency, its new circular says that Mutual Fund redemption up to Rs. 2 lakh by investors cannot be restricted anymore. In the case where the amount exceeds Rs. 2 lakhs, the first Rs. 2 lakh will be redeemed without any restriction. Since for most retail investors, investments are below or around Rs. 2 lakhs, this guideline will be hugely helpful. It was a major problem earlier, even for the top 10 Mutual Funds.
Asset management companies (AMCs) can impose restrictions on redemptions by investors only when there are issues that could lead to a systemic crisis rather than based on entity specific instances.
- Under normal circumstances there can be no restrictions on investor’s redemption for open-ended schemes – whatever be the amount.
- The circumstances when the restriction would apply would be when there is an overall market crisis, and not when there are issues relating to any specific fund house.
- Even in the case of systemic crisis the fund house can only impose restrictions on the amount above Rs. 2 lakhs. Another exception when the redemptions may be restricted is when there is a temporary sanction due to overall market closure. Even then it cannot be for more than 10 days.
This new move is thus small investor friendly. So expect more people to get rid of fixed deposit calculators, and go for debt mutual funds.
0 comments: