SEBI has made it mandatory for mutual funds that are winding up its schemes to list them on stock exchanges, so as to provide a transparent exit option for investors. The diktat will come into force with immediate effect, said SEBI on Wednesday.

Following this development, Franklin Templeton has to compulsorily list its six debt schemes that are being closed. Though the fund house has been saying that it will repay investors as early as possible, investors are concerned over liquidation of its debt papers maturing over three years.

Welcoming the decision, NS Venkatesh, CEO, Association of Mutual Funds in India, said the proposal to allow listing of schemes that are in the process of winding up offers alternative liquidity source to investors in these schemes.

Fund houses have to take several steps before a scheme ceases to exist. During this process, SEBI said such units can be listed and traded on a recognised stock exchange, which will provide an exit option to investors.

Accordingly, the units of mutual fund schemes which are in the process of being wound up should be listed on a recognised stock exchange, subject to compliance with listing formalities as stipulated by the stock exchange. However, on listing it will not be mandatory for investors to exit the scheme and they may do so, if they wish, said SEBI.

Initially, trading in units of such listed schemes that are being wound up will be in dematerialised form and AMCs have to facilitate transfer of the units.

Operational modalities

In the next seven days, stock exchanges, in consultation with SEBI, will come out with operational modalities including mechanism for order placement, execution, payment and settlement; enabling bulk orders for trading in units; issues related to suspension of trading, and declaration of date for determining the eligibility of unit-holders in respect of payments to be made by the AMC as part of the winding up process.

Stock exchanges will also decide on the disclosures to be made by AMCs including daily NAV and scheme portfolio.

Mutual funds, its trustees and employees will not be allowed to transact in the listed schemes.