Markets regulator Securities and Exchange Board of India (Sebi) has laid out a set of guidelines for listing of mutual fund schemes which are in the process of winding up, wherein the AMC, its sponsor, employees and trustees will not be allowed to transact in such units.
This decision from Sebi comes a month after Franklin Templeton Mutual Fund closed six of its debt schemes in April citing redemption pressures and lack of liquidity in the bond markets.
As per the guidelines, Winding up units can be listed and traded on a recognized stock exchange, which may provide an exit route to investors.
“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,” Sebi said in a circular.
However, “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.”
“Initially, trading in units of such listed schemes that are in the process of winding up have to be in dematerialised form.” Further, “asset management companies (AMCs) need to enable transfer of such units which are held in form of ‘statement of account’ or unit certificates.”
“Detailed operational modalities for trading and settlement of units of MF schemes that are in the process of winding up will be finalised by the stock exchanges where units of such schemes are being listed, in consultation with Sebi,” the circular read.
The operational modalities need to include the mechanism for order placement, execution, payment and settlement as well as enabling bulk orders to be placed for trading in units.
“Issue related to suspension of trading, declaration of date for determining the eligibility of unitholders etc in respect of payments to be made by the AMC as part of the winding up process,” Sebi said. Further, “disclosure to be made by AMC should include net asset value (NAV) on daily basis and scheme portfolio periodically, among others,” it added.
“The stock exchanges need to develop a mechanism along with registrar and share transfer agent (RTA) for trading and settlement of such units held in the form of statement of account or unit certificate,” the circular said.
“The AMC, its sponsor, employees of AMC and trustees will not be permitted to transact (buy or sell) in the units of such schemes that are under the process of being wound up. The compliance of the same will be monitored both by the board of AMC and trustee,” it said.
The circular will come into force with immediate effect, said the market’s regulator adding that stock exchanges desirous of offering this facility need to submit the detailed operational modalities to the regulator within seven days from the issuance of the circular.