What does SEBI making it compulsory for mutual funds to seek approval before winding up schemes mean?

This was clearly driven by the Franklin Templeton fiasco which happened in April 2020 when the fund house summarily shut 6 of its debt fund schemes without prior notice to the unit holders. Now, SEBI has tightened norms for mutual funds winding up schemes. To safeguard interests of unit holders, SEBI has put a lot more of onus on trustees, who will have the responsibility of obtaining the consent of unit holders for winding up of schemes.

According to the new regulations announced by SEBI, mutual fund schemes can be wound up only if 75% of the unitholders vote in favour of the winding up. However, to protect small investors in the fund, the vote will be based on the principle of 1 vote per unitholder. In addition, the KYC Registration Agencies or KRAs will have to carry out independent validation of KYC records uploaded. Full audit trail is mandatory for greater accountability.