Under SEBI regulations, under what conditions can an AMC impose restrictions on redemptions (gating), and what operational protection applies to retail unitholders?

[ A ]Imposed only during systemic crisis, market failure, or force majeure (max 10 working days in a 90-day period) with Trustee and SEBI approval; no restriction applies on redemption requests up to Rs. 2 lakhs.[ CORRECT ]

[ B ]Imposed whenever a fund manager makes a bad stock pick; applies to all redemption requests above Rs. 100.

[ C ]Imposed permanently for 5 years without informing Trustees or the regulator.

[ D ]Imposed on every public holiday to prevent internet banking transactions.

Takeaway

Option A is correct: Imposed only during systemic crisis, market failure, or force majeure (max 10 working days in a 90-day period) with Trustee and SEBI approval; no restriction applies on redemption requests up to Rs. 2 lakhs.

Derivation

SEBI allows restriction on redemptions (gating) only under exceptional systemic crisis situations—such as market-wide illiquidity, exchange closure, or force majeure operational failures. It CANNOT be used to manage normal liquidity or bad investment calls on specific securities. Restrictions require prior approval from AMC and Trustee boards and immediate intimation to SEBI. Gating can be imposed for a maximum of 10 working days in any 90-day period. Crucially, no restrictions apply to redemption requests up to Rs. 2 lakhs (and the first Rs. 2 lakhs of larger requests is redeemed). This tests gating rules. The common error is thinking gating applies to small retail redemptions.

Why the others fail

B — Imposed whenever a fund manager makes a bad stock pick; applies to all redemption requests above Rs. 100.

Gating cannot be used to cover up poor individual investment decisions; it is restricted to systemic, market-wide illiquidity events.

C — Imposed permanently for 5 years without informing Trustees or the regulator.

Gating cannot exceed 10 working days in a 90-day window and requires mandatory board approval and immediate SEBI reporting.

D — Imposed on every public holiday to prevent internet banking transactions.

Public holidays follow standard banking settlement calendars and do not involve formal emergency gating declarations.