Following the JP Morgan MF decision to restrict redemption in two of its short term debt schemes due to Amtek Auto episode, SEBI is planning to come out with a uniform guidelines on gating practices soon. The decision was taken at a recently held meeting of SEBI’s Mutual Fund Advisory Committee (SMFAC), said sources who attended this meeting.
Gating practices refer to the rights of fund houses to restrict investors from redeeming their investment from the fund if something went wrong with the scheme. Typically, fund houses puts such exigency clauses in their offer documents and hence there are no uniform guidelines on gating practices currently.
An SMFAC member told Cafemutual that the market regulator is reviewing exigency clauses of various debt funds and is likely to issue guidelines on this practices in the coming months.
A senior fund official is of the view that gating practices defy the purpose of liquidity for which mutual funds are known for. He said such practices should not be entertained.
However some fund officials have a different view. “Though such practices can limit investors from exiting the fund, it helps maintaining stability and restricts unnecessary redemption pressure,” said another senior fund official.
Earlier in August, JP Morgan MF had restricted redemptions in its two schemes – JP Morgan India Short Term Income Fund and JP Morgan India Treasury Fund having collective AUM of Rs. 2,964 crore.
In September, SEBI has sent an email to AMC CEOs advising fund houses to reassess their risk management policy related to fixed income schemes.
