AMCs cannot place restrictions on redemption requests of up to Rs. 2 lakh and the redemption restriction period should not exceed 10 days in three months.
Following the Amtek episode, SEBI has come out with a fresh set of regulations which bars AMCs from placing redemption restrictions due to illiquidity of a specific security in the portfolio of a scheme arising from a poor investment decision, states a SEBI circular issued today.
SEBI has said that AMCs can restrict redemptions only in the event of three circumstances – operational, liquidity and market failure.
The regulator has said that fund houses can place redemption restrictions in the event of a systemic crisis which constricts market liquidity. “AMCs should have in place sound internal liquidity management tools for schemes. Restriction on redemption cannot be used as an ordinary tool in order to manage the liquidity of a scheme,” states SEBI circular.
Further, redemption restrictions can be placed in case of market failures/exchange closures or unexpected events related to political, economic, military, monetary or other emergencies. Also, redemption restrictions can be placed when there are operational issues which are unpredictable.
AMCs cannot place restrictions on redemption requests of up to Rs. 2 lakh and the redemption restriction period should not exceed 10 days in three months.
Existing schemes have to comply with this circular from July 1 while all new schemes launched from May 31 will have to follow the rules with immediate effect.
Currently, fund houses can restrict redemptions in any scheme only after seeking approval from the Board of Directors of the AMC and the Trustees. “The redemption restriction provisions are general in nature and do not specifically spell out the circumstances in which restriction on redemption may be applied; leading to discretionary disclosures and practices in the industry,” states SEBI circular.
SEBI has asked AMCs to disclose this information to investors prominently in the scheme related documents.
