SEBI Allows Listing of Mutual Funds in the Process of Winding Up
   May 21, 2020

The market regulator SEBI, has asked mutual fund houses to list the units of mutual fund schemes that are in the process of winding up in order to provide an exit option to investors.

The circular is in line with Regulation 32 of SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”) and SEBI Circular no. SEBI/HO/IMD/DF2/CIR/P/2018/160 dated December 28, 2018, where every close-ended scheme and units of segregated portfolio shall be listed on recognized stock exchanges

The circular highlights that as per MF Regulations, there are several steps envisaged with respect to winding up of Mutual Fund schemes before the scheme ceases to exist. During this process, such units can be listed and traded on a recognized stock exchange, which may provide an exit to investors.

Accordingly, the units of six debt schemes from Franklin Templeton that are in the process of winding-up, shall be listed on recognized stock exchange, subject to compliance with listing formalities as stipulated by the stock exchange. For this the AMC needs to transform the units of such schemes in dematerialized form, and offer exit facility to investors. Moreover, AMCs shall enable transfer of such units which are held in the form of Statement of Account (SoA) / unit certificates.

The trading in the units of the schemes on stock exchange will not be mandatory for investors, but will offer an exit facility to investors who desire to exit at the available price per unit. It is noteworthy that the trading of mutual fund units on stock exchange have low volume and may be subject to price mismatch due to demand supply gap. i.e. Investors willing to exit may have to sell their units at the discount to the current NAV, subject to availability of buyers willing to buy the units of the scheme.

The circular that will come into force with immediate effect, states that the AMC, its sponsor, employees of AMC and Trustee shall 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 shall be monitored both by the Board of AMC and Trustee.

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