Mutual funds must take unitholders’ approval before winding up of schemes: Sebi

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NEW DELHI: The Securities and Exchange Board of India (Sebi) on Tuesday made it compulsory for trustees of a fund to obtain consent of unitholders when the majority of trustees have decided to wind up a scheme or prematurely redeem units of a close-ended scheme.

As of now trustees have the right to decide on the closure of a scheme.

“Further, the trustees shall obtain the consent of the unitholders by a simple majority of the unitholders present and voting on the basis of one vote per unit held and publish the results of voting within 45 days of the publication of notice of circumstances leading to winding up,” Sebi said in a release detailing the decisions taken at its board meeting today.

The regulator said in case trustees fail to obtain consent, the scheme will have to open for business activities from the second business day after publication of results of the voting.

“There will be a standstill for 45 days after trustees approve winding up during which time the unitholders will have to give their consent. If the consent is not granted the schemes will reopen,” Ajay Tyagi, chairman, Sebi.

The amendment to the mutual funds regulations has been brought about after the Supreme Court earlier this year ruled that trustees in a mutual fund scheme have to take the consent of unitholders before deciding to wind up the scheme or prematurely redeem units.

The apex court’s decision came in the case related to winding-up of Franklin Templeton Mutual Fund’s six debt schemes.

Franklin Templeton Mutual Fund shut six debt schemes with assets of around 26,000 crore on 23 April 2020 after faced with unprecedented redemptions. The six schemes were ultra-short bond, low duration, short term income, income opportunities, dynamic accrual, and credit risk fund.

In another amendment, the board of Sebi decided to mandate mutual funds schemes to follow Indian Accounting Standards (IND AS) from financial year 2023-24.

It also approved amendments to MF regulations with respect to accounting-related regulatory provisions to remove redundant provisions and to bring more clarity.

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