Instant Redemption Of Liquid Mutual Funds from SEBI:
SEBI is looking to provide facilities to the customers wherein they can receive instant credit in their bank account post redeeming their liquid mutual fund, similar to mobile wallet transaction. The stock market regulator is in the process of designing rules for such transactions. If SEBI implements the scheme on the ground it will enhance the inflow and attract the retail customers towards Mutual funds. As of now, around Rs 2.78 trillion are managed under liquid funds and retail customer contribution is around 3%.
As of now, the money that customer gets after redeeming the mutual fund is credited to his account next working day or two days after the request is made. This happens if the payment is not done through the immediate payment service(IMPS). This is one factor, where Fixed deposit out do the Liquid Funds. Two Mutual funds, namely Reliance Capital Asset Management Ltd and DSP BlackRock Mutual Fund have already started giving their customers the facility of instant redemption in Liquid as well as money market scheme. The amount that can be redeemed is capped to 95% of total balance and a maximum of Rs 2 Lakh per day.
SEBI wants customers to be more comfortable in buying the mutual fund and invest in other liquid funds. Further, the timing seems to be good as the rates on fixed deposits offered by the banks are also low than offered by liquid funds. SEBI has already discussed its plan with the Association of Mutual Funds in India(AMFI). The stock market regulator is looking to finalise the rules by the end of current fiscal year and implement it thereafter. Liquid funds are free of any load and the exact return offered to the investors is known in advance which is why it has potential to attract large number of investors.
Further, SEBI is looking to put a limit on such transactions to keep any sort of systematic risk at bay in case people start frequent bulk redemption. Therefore, the regulator is looking to provide such facility to the investor under which 70-80% of the redemption will be credited to the investor’s account on the same day. This is done in order to make sure that in case of any negative flow of news, net asset value of the scheme does not suffer immediate jerk on the back of people withdrawing money from the scheme. Reserve bank of India has set its guidelines in connection to all such provisions and SEBI will have to make rules accordingly.
Although the chances of any systematic risk occurring Liquid fund is very low, SEBI wants to make sure that even in the worst case scenario the harm to funds is not beyond repairs. There has not been any instance where liquid fund suffered a setback except one. instance. Back in 2013, severe damage was done to the liquid funds when RBI sucked out liquidity in order to protect rupee. In that scenario, the bond prices cracked and the yield shot up, affecting the net asset value. Investors, then pulled out Rs 45,000 crore in span of just two to three days.