SEBI recently allowed fund houses to facilitate instant redemption in liquid funds of up to Rs50,000 or 90% of folio value, whichever is lower on such redemptions.
We spoke to experts on SEBI’s latest move.
Appreciating the move Nimesh Shah, MD and CEO, ICICI Prudential Mutual Fund, says, "This is a step in the right direction. I think it is essential for all fund houses to adopt technology more proactively and ensure that this becomes a default facility."
Mumbai based financial advisor, Nisreen Mamaji, of Moneyworks Financial Advisors, feels that this facility will help mutual funds to replace savings bank accounts. "Though a few MF companies offer this feature, with the regulator backing it, I think we can expect the other AMCs to follow suit,” she says. This is, however, only the start, Nisreen believes. “Now the advisory community and the industry will start educating investors on how having a liquid fund is better than a savings bank account. From an investor point of view, this will be a good way to get a taste of mutual funds. Once investors start warming up to the idea of investing in mutual funds, we can encourage them to diversify their portfolio," she adds.
Seconding Nisreen’s view, Suresh Sadagopan of Ladder7 Wealth Advisories says, "While this is a welcome move, the investor's reception of it will be based on how fund houses implement it. If the spirit of the circular is to be considered, mutual funds might soon emerge as an alternative to a bank account, at least to an extent."
Two fund houses – Reliance Nippon Mutual Funds and DSP BlackRock Mutual Fund – have been offering this facility for some time now. Commenting on the regulator's move, Sandeep Sikka, MD & CEO Reliance Nippon Mutual Funds, says, "It is a proud moment for us that our innovation has been adopted as a policy by the regulator. Instant redemption facility will help industry leverage the smart phone penetration. This could increase the confidence of people in mutual funds as an investment option. By giving this option, fund houses can overcome people's reluctance to invest in mutual funds.”
So far, his fund house has seen more than 2.50 lakh transactions under the instant redemption facility.
When asked if the reduction in the redemption limit from the fund's existing Rs2 lakh to the regulator's suggested Rs50,000 will make a difference, Sikka says, "I don't think it will have much impact. Though we had given a limit of Rs2 lakh, the maximum redemption has been only up to Rs25,000.”
The instant redemption facility will be useful for investors who need urgent cash. Currently, when investors place a redemption request before cut-off time on a business day, they have to wait for a day; it takes two working days on non-working days.
