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Separation Pangs For MFs?

SEBI is looking to segregate plans to help retail investors

Mutual funds offering the retail and institutional plan options may well be compelled to segregate their investments in two different portfolios.

Market regulator Securities and Exchange Board of India (SEBI) is considering such a proposal, says Businessworld, as presently most such schemes have a common portfolio for the two plans and the corpus in institutional plan is substantially higher than the retail plan.

While for an institutional plan, one requires a minimum investment amount of Rs 50 lakh or more, on the other hand, a retail plan requires a minimum investment amount of Rs 5,000.

If the market regulator goes ahead with the proposal of segregation, the two plans would have very different Net Asset Values (NAV) along with separate corpuses which is likely to benefit the retail investors to a great extent.

What happens now is that when corporate investors redeem in huge amounts, which they are prone to do to meet their various payment schedules, the fund manager of the scheme then has to sell the most liquid investments to meet the outflows, affecting the non-redeeming investors in a bad way.