Securities and Exchange Board of India vide it circular dated
31st May, 2016 eased the redemption norms for mutual fund investors
by allowing them to redeem their investment partially even if the
asset management company imposes restriction on redemption.
As per the earlier circular, Board of Directors of the Asset
Management Company (AMC) and the Trustees could impose restriction
on redemption under any scheme of the mutual fund. Due to the
general nature of provisions in the earlier circular giving
discretionary powers to AMC's and in light of recent incidents
of companies imposing unreasonable restrictions, SEBI recognised
the need to have a re-look at the circumstance under which such
restriction on redemption could be imposed.
GENERAL MARKET LIQUIDITY
The circular states that circumstances calling for restriction
on redemption should be such that illiquidity is caused in almost
all securities affecting the market at large, rather than in any
issuer specific securities. Therefore, restrictions can be imposed
in case of systematic crisis or events that severely constrict
market liquidity or the efficient functioning of market.
AMC's cannot use restriction as a tool for managing
liquidity in schemes and must have proper internal liquidity
management tools in place. If a fund takes a poor investment
decision and is not able to sell a specific security in the
portfolio of a scheme that leads to a liquidity issue, it cannot
If the market is hit by unexpected events related to political,
economic, military, monetary or other emergencies, which impact the
functioning of exchanges or the regular course of transactions,
AMCs can impose restriction or limits on redemptions.
Restriction in case of exceptional circumstances caused by
force majeure, unpredictable operational problems and technical
failures can only be considered if they are reasonably
unpredictable and occur in spite of appropriate diligence.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The committee set up to draft a Code on Resolution of Financial Firms, by the Ministry of Finance, Government of India, on September 28, 2016, released a draft bill – The Financial Resolution and Deposit Insurance Bill, 2016...
In a race to adopt technology innovations, Banks have increased their exposure to cyber incidents/ attacks thereby underlining the urgent need to put in place a robust cyber security and resilience framework.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).