The Securities and Exchange Board of India (SEBI) has published a circular dated 31, May 2016 on the norms on restrictions that may be imposed on redemption of mutual funds by the Asset Management Company (AMC). This move comes as a preventive measure after the redemption crisis faced by two schemes of J.P. Morgan Asset Management India in September 2015 involving Amtek Auto.
As per the circular, there would be no restrictions imposed on redemption requests up to Rs.2 lakh. Since most of the retail investments are usually below or around Rs.2 lakh, the norm is investor friendly.
In case the redemption requests are above Rs.2 lakh, the amount over and above Rs.2 lakh shall be subject to such restrictions only in case ofsystemic crisis or event that severely constricts market liquidity or the efficient functioning of markets; rather than in any issuer-specific securities. Further, such restrictions on redemptions can be imposed only for a specified period of time that cannot exceed 10 working days in any given 90-day period, after prior approval from the board of the AMC and trustees. Also, the same should be informed to SEBI immediately.
The SEBI norms on restriction on redemption limits has been effective for all existing schemes from 1 July 2016.