Sebi expresses concern over instant MF redemptions, liquidity management

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The regulator for the securities market in India, Sebi, has expressed concern over the facility of instant withdrawal from liquid mutual funds. This option has been provided by several mutual fund houses and has gained popularity in the recent past.

Fund houses offer retail investors an option to withdraw a maximum of Rs.2 lakh per day. This money will be credited to their bank accounts through IMPS within 30 minutes of redemption. The facility is functional all throughout the year as well.

G Mahalingam, Sebi’s whole-time member expressed apprehension over liquidity issues and mentioned that although the facility looked convincing, it remains to be seen as to how much liquidity demand can be managed. He also stated that additional thought needs to be put into the concept so that it can be implemented without attracting problems related to industrial and financial stability.

The fund houses that are currently providing instant redemption facility in their liquid funds include Reliance Money Manager, ICICI Prudential Savings Fund, and DSP BlackRock Money Manager.

Birla Sun Life has also launched the instant redemption facility recently, under its Cash Plus Fund. Reliance MF launched this facility last year, and it has seen close to 1 lakh instant redemptions that amount to a total value of Rs.200 crore.

Fund houses are of the opinion that these offerings do not need to stir up any concern. Chief Executive of Birla Sun Life Mutual Funds, A Balasubramanian said, “There is no need for concern; we have discussed this issue in the MF advisory committee and had discussions with Sebi in the past too.”

Mutual funds distributors are of the opinion that investors can earn 7-8% through investments in liquid schemes that offer instant redemption facility, in comparison to savings accounts that provide 4% interest rates. Industry reports indicate that first-time investors have benefitted largely from these schemes.

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