If redemption numbers are high, can equity mutual funds also shut like Franklin debt funds?
- Abhishek Kavlekar
Equity and debt are a little different from each other. In the case of Franklin, the debt market got frozen as lower-rated papers suddenly became illiquid, which the AMC couldn't sell to honour redemptions. On the other hand, in the equity market, there is always a buyer in the market; however, you may need to sell it at a lower price and get out of it. We saw that in the market crash of 2008, small-cap funds went down in value by 70-75 per cent, but there was a willing buyer at a certain but very low price. So, in the case of a high number of redemptions, you may lose your money in terms of value in equity, but there is a market for the funds where they'll have both buyers and sellers for it.
There hasn't been a situation where an equity fund has been shut down due to redemptions. But yes, in the back end if the stock exchanges are shut down due to some outlying reason, then equity funds will also shut down because mutual funds are nothing but a vehicle that provides access to that equity market.