This is a guest login. You can create a regular account or login to an existing one.

VR Logo

Do we have a circuit breaker in mutual funds?

Dhirendra Kumar explains why mutual funds do not have the 'circuit breaker' provision, unlike stocks

I think there is a provision of a circuit breaker in stocks to protect investors from heavy losses. Do mutual funds have the same provision as well?
-Amit

Mutual funds do not have any circuit breaker provision. In the case of stocks, the provision of a circuit breaker is used to stabilise any unusual movement. On the other hand, mutual funds do not have any circuit breaker because you cannot buy or sell such funds at the prevailing price that is known to you, which is quite possible for stocks.

With regard to mutual funds, you can only estimate the increase or decrease in NAV by a certain percentage on the basis of the market movement. If you transact before 3:30 pm, you will get that day's NAV, which is decided only after the market is closed. Similarly, if you transact after 3:30, you will get the NAV of the next business day, which is not known to you.

Another reason is that mutual funds are basically a diversified portfolio. So, you don't actually get to see very unusual sudden movements that you can see in stocks. Further, with mutual funds, the scale of movement is comparatively less, as the whole impact gets averaged out among various stocks. But yes, if many investors suddenly start redeeming, it will de-stabilise the fund. Then, the fund can very well stop redemptions and new inflows. But it does not happen usually.

Video