Sebi accepts Amfi proposal to levy exit loads in liquid schemes

The graded exit load has been set at 0.0070% on Day 1, 0.0065% on Day 2, 0.0060% on Day 3, 0.0055% on Day 4, 0.0050% on Day 5, 0.0045% on Day 6 and zero exit load from from Day 7 onwards.

Markets regulator Securities and Exchange Board of India (Sebi) has accepted the proposal of the Association of Mutual Funds in India (Amfi) regarding levy of exit loads on a graded basis in liquid funds. Market participants say this move will lead to outflows from liquid funds into overnight funds, but at the same time, it will make flows into liquid funds more stable.

The graded exit load has been set at 0.0070% on Day 1, 0.0065% on Day 2, 0.0060% on Day 3, 0.0055% on Day 4, 0.0050% on Day 5, 0.0045% on Day 6 and zero exit load from from Day 7 onwards. Generally, institutional investors like banks and corporates park their short-term money into liquid funds.

Mahendra Kumar Jajoo, head — fixed income, Mirae Asset Global Investments (India) said: “This is a new environment, one will have to reassess the investment pattern for investments in liquid funds. It is expected that some part of the institutional money will move into overnight funds because of the new regulations by the regulator.”

Data from Amfi showed that liquid funds had average assets under management (AAUM) of Rs 3.88 lakh crore as on September. The AAUM for overnight funds stood at Rs 13,851.77 crore.

Currently, liquid funds invest in several money market instruments like commercial papers, commercial bills, treasury bills and certificate of deposits. Overnight funds invest in debt instruments that have residual maturity of one business day.

“Institutional investors who came to liquid funds for less than seven days will move their money into overnight funds. Institutional and retail investors who wish to say invested for more than seven days will continue to invest in liquid funds,” said another fund manager.

For example, the exit load will be Rs 350 on redemption of Rs 50 lakh on Day 1 and Rs 325 on Day 2.

Market participants say they expect around 10-15% of the money from liquid funds to go into overnight funds in the days to come due to the change in the regulations.