Sebi gives exit route to mutual fund investors in wound up schemes

The Securities and Exchange Board of India has said that the units of schemes in the process of winding up will have to be listed on recognised stock exchanges. This rule will have to be followed by all open and close-ended schemes. This move by the market watchdog comes after Franklin Templeton Mutual Fund decided to wind up 6 of its debt mutual fund schemes.

In a circular issued on Wednesday, Sebi said:
"In terms of Regulation 31B(1) of the MF Regulations, the units of Mutual Fund schemes can be listed in the recognized stock exchange. Accordingly, the units of Mutual Fund schemes which are in the process of winding-up in terms of Regulation 39(2)(a) of MF Regulations, shall be listed on recognized stock exchange, subject to compliance with listing formalities as stipulated by the stock exchange."


However, it is not mandatory for the investors to trade or sell their units. "Pursuant to listing, trading on stock exchange mechanism will not be mandatory for investors, rather, if they so desire, may avail an optional channel to exit provided to them," the Sebi circular said.

Mutual fund distributors, like Rushabh Desai, believe that this might not be of great help to retail investors. He believes that the buying and selling of distressed units on exchanges is a tedious process, not fit for retail investors.

"Investors might have to deal with issues like not finding buyers for units of wound up schemes, as most of these scheme have low rated instruments. The requirement of having demat account to buy such units makes it a bit unattractive for small investors. However, it is good that there is an option," Desai says.