SEBI flags concerns on instant redemption in liquid funds

The Securities and Exchange Board of India (SEBI) has expressed concerns over a few mutual fund houses allowing investors the option of instant withdrawal from their liquid schemes.

A SEBI official has expressed reservations over management of liquidity demand. “We need to think what parameters that go along with instant redemption. Are we going to provide instant redemption if a person clicks and we get the amount credited to the bank account? Mutual funds need to see how much of liquidity demand can be managed,” said G Mahalingam, whole-time member, SEBI said.

He further questioned whether mutual funds are prepared to keep a portion of the total assets in the liquid form to honour instant redemption.

In the recent past, a few fund houses have begun offering retail investors an option to withdraw upto Rs 2 lakh in a day. Investors who opt for this facility get the money in their bank accounts via the IMPS (immediate payment service) route.

The regulator feels instant redemption is akin to a bank account dispensing money on demand.

Currently, Reliance Mutual Fund, ICICI Prudential Mutual Fund, DSP BlackRock Mutual Fund offer instant redemption facility for their liquid funds, while Birla Sun Life Mutual Fund launched instant redemption facility under Birla Sun Life Cash Plus Fund two weeks ago.