MF Schemes in the process of winding up can be listed now!

The capital market regulator, SEBI, through its latest circular has allowed the mutual fund schemes that are in the process of winding up to get listed in the stock exchanges. The current regulation of mutual fund scheme only requires close-ended schemes and the units of the segregated portfolio to be listed on the recognised stock exchange. This circular needs to be viewed against the backdrop of Franklin Templeton Mutual Fund debt fund fiasco. This has led to a lock-in of around Rs 31,000 crore worth of investors’ money in the fund.

Last month, unexpectedly, Franklin Templeton Mutual Fund had frozen six debt mutual fund schemes namely, Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short-Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund. The step was taken due to severe illiquidity and redemption pressures caused by COVID-19 pandemic. Now, many investors, who require their fund back will have to wait till the fund house get the money back from the paper where they had invested. There is no timeline for such a refund; however, it may take a couple of years. This move of listing will help many investors with liquidity and exit opportunity.

According to the circular, ‘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 recognised stock exchange, which may provide an exit to investors.’

Initially, trading in units of such a listed scheme that is under the process of winding up shall be in dematerialised form. AMCs shall enable the transfer of such units which are held in the form of the statement of account (SoA)/ unit certificates.

The circular further clarifies 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.’