Scheme closure (winding up) is the process of shutting down a mutual fund scheme and returning all investor money — allowed only under specific SEBI-defined circumstances.
SEBI regulations permit scheme closure under specific conditions: trustees decide winding up is in investors' best interest, unit holders pass a resolution to wind up, or SEBI orders it. During winding up, the fund manager liquidates all portfolio holdings, settles liabilities, and distributes remaining net assets to unit holders on a pro-rata basis. Investors are notified well in advance and given the option to redeem before winding up begins.
A scheme closure is the mutual fund equivalent of a company shutting down its business. The fund manager sells all the stocks and bonds in the portfolio, pays off all expenses, and returns the remaining cash to all investors proportionally. It's rare and typically happens when the fund becomes too small to operate efficiently, the strategy is no longer viable, or a regulatory mandate requires it.
Trustees or unit holders approve winding up.
SEBI notified; investors informed at least 3 months in advance.
Fund manager liquidates all securities.
Investors can redeem before final winding up date.
Post-liquidation, net assets distributed proportionally to all remaining unit holders.