Mixed reaction to Sebi's new rules on redemption

Sebi had barred asset management companies from restricting redemption requests till units worth Rs 200,000 in any circumstances

Mutual funds (MFs) have had a mixed reaction to the new rules set by the Securities and Exchange Board of India (Sebi) on redemption of units.

A larger section of the sector is supportive of the regulator’s action but some have doubted if the move will actually help individual investors.

On Tuesday, Sebi had barred asset management companies (AMCs) from restricting redemption requests till units worth Rs 200,000 in any circumstances. The move came on the backdrop of the Amtek Auto episode, affecting two of JPMorgan AMC’s schemes a year before. The fund house had ‘gated’ withdrawals of units in the crisis-hit schemes, and investors had protested.

One of the top chief executives, who wished not to be named, told Business Standard, “There have been cases where some players were giving too much importance to returns and neglecting the two other important factors, liquidity and security. With this move, fund managers will be extra careful while investing in certain papers and securities, helping investors.”

Earlier, fund managers could rely on practices like 'gating' for liquidity management in a crisis. Dhirendra Kumar, chief executive of Value Research, a fund tracker, says, “The new norms appear to be good for investors. Some checks and balances were required.”

Manoj Nagpal, CEO of Outlook Asia Capital, says: “It is a step in the right direction and will benefit investors. Further, it will enforce upon fund managers not to take a poor investment decision.”

Some are irked by the new norm. “Only the smart, well informed and large investors can take the benefit of this window well in time. They tend to know details about schemes' portfolios and are the ones to move out first, whenever such a crisis hits. Retail (small) customers, more passive with their sticky and long-lasting investments, are very late to react. Possibly, by then, large investors would exit and retail ones might be left with a very poor NAV (net asset value),” says a CEO.

He also says such gating instances are rare and AMCs should have the facility to do so, in the interest of all unit holders, large and retail.