SEBI allows fund houses to provide instant redemption facility in liquid funds

SEBI allows fund houses to provide instant redemption facility in liquid funds

Now investors can use liquid funds to manage cash flows, just like savings bank accounts. SEBI has allowed fund houses to provide instant redemption in liquid funds. However, the market regulator has put a limit of Rs50,000 or 90% of folio value, whichever is lower on such redemptions.

Fund houses can extend this facility to individual investors only, i.e., retail investors and HNIs.

In a circular issued today, SEBI said, “Mutual Funds/Asset Management Companies (AMCs) can offer instant access facility (through online mode) of up to INR 50,000 or 90% of folio value, whichever is lower, to resident individual investors in liquid schemes by applying lower of Previous Day NAV or Prospective NAV.”

Currently, investors have to wait for a day to get their money if they redeem from liquid funds (if they place redemption request before the cut-off time). If an investor places a redemption request on a non-business day, say Saturday, he/she gets the redemption proceeds on Tuesday. This can be frustrating for someone who needs money urgently.

Investors can instantly redeem liquid mutual funds up to Rs 50,000 a day, or 90% of the folio value, whichever is lower. Currently, money from redeeming a mutual fund gets credited to a customer’s account only on the next working day or two days after the request if it is not done through the immediate payment service (IMPS), placing liquid funds at a disadvantage to bank fixed deposits. While some funds already provide this instant redemption facility, Sebi has capped the limit at Rs 50,000.

SEBI further clarified that fund houses cannot borrow to meet the redemption requirement. Liquidity is to be provided out of the available funds from the scheme, and AMCs will have to put in place a mechanism to meet the liquidity demands on their own, added SEBI.

Currently, two fund houses – Reliance and DSP BlackRock – offer instant redemption facility of up to Rs2 lakh in their liquid funds that works 24×7. However, SEBI asked these fund houses to lower the limit to Rs50,000 within a month. “At present, any scheme providing this facility would reduce the limit to INR 50,000, immediately and other than liquid schemes providing this facility would completely stop this facility within one month from the date of circular,” SEBI said.

Earlier, Cafemutual had reported that the Mutual Fund Advisory Committee (MFAC) recommended SEBI to allow instant redemption facility in liquid funds. SEBI formed a small group of MF CEOs to look into this matter.

A member of MFAC earlier told Cafemutual that the idea is to replace the savings bank account with liquid funds so that investors can get better risk adjusted returns post taxation.