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NEW DELHI : Stock markets regulator the Securities and Exchange Board of India (Sebi) on Tuesday directed mutual fund trustees to secure the consent of unitholders before winding up a scheme or prematurely redeeming units of a close-ended scheme, on the lines of a Supreme Court ruling this year in the Franklin Templeton case.

Currently, trustees—people responsible for managing the money, property or assets used in mutual funds—have the authority to wind up schemes without the consent of unitholders.

“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 press release detailing the decisions taken at its board meeting.

The amendment to mutual regulations follows a Supreme Court ruling earlier this year that trustees must take the consent of the unitholders before winding up a scheme or prematurely redeeming units.

Unable to meet redemption pressure, Franklin Templeton on 23 April 2020 froze redemptions in six debt funds with combined assets of around 26,000 crore. These were Low Duration Fund, Dynamic Accrual Fund, Credit Risk Fund, Short Term Income Plan, Ultra Short Bond Fund and Income Opportunities Fund. So far, a total of 25,114 crore has been distributed among investors across the six schemes under the winding-up. The winding-up sparked a flurry of litigation; the matter ended up before the Supreme Court, which ruled that trustees must seek unitholder consent in such cases.

On Tuesday, Sebi said that if the trustees fail to obtain consent, the scheme will have to open for business activities from the second business day from the publication of results of the vote. “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," Sebi chairman Ajay Tyagi said.

Amol Joshi, founder of Plan Rupee Investment Services commented that this will make any winding-up nearly impossible. “The reason is a behavioural issue. When you inform a unitholder that your money will be stuck, at least in the speaking terms indefinitely, the approval will be difficult. We all give our money to fund managers because they are more aware of what market and what securities they are dealing in. I, as a lay unitholder, would not approve the winding-up because winding-up as a term has a certain negative connotation," Joshi said.

Separately, Sebi decided that mutual fund schemes must follow Indian Accounting Standard from 2023-24

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