NISM-Series-V-A: Mutual Fund Distributors · Scheme Related Information

Scheme Mergers, Closure and Unitholder Rights in Mutual Funds

Updated 11 October 2026

A scheme merger combines two or more mutual fund schemes. Winding up closes a scheme and returns money to unitholders. Both are treated as changes that affect unitholders, so they need SEBI-prescribed disclosure, and unitholders must be given an exit option. Unitholders also hold rights to information, to vote on key changes, and to their share of the proceeds.

Understand Scheme Mergers, Closure and Unitholder Rights

A mutual fund scheme is a pool of money owned by its unitholders. The AMC manages it, and the trustees protect the unitholders' interests. Because the assets belong to unitholders, any major change to the scheme must be communicated to them, and sometimes they must be allowed to leave.

Consolidation or merger means combining schemes. The AMC may do this to remove overlap, for example when two schemes follow nearly the same strategy. SEBI's scheme categorisation rules also push AMCs towards one scheme per category, which is a common reason for mergers. A merger or consolidation that results in a change in fundamental attributes needs trustee approval and SEBI's observations under the prescribed process. Unitholders must be given notice and an exit option of 30 days at the prevailing NAV without exit load.

Winding up means closing a scheme. A scheme is wound up in specific situations under the SEBI (Mutual Funds) Regulations, 1996. These include the end of a fixed term (as with a close-ended scheme), the trustees deciding to wind up the scheme if, in their opinion, circumstances warrant it, a decision by unitholders through a resolution passed by a three-fourths majority of those present and voting, or a direction from SEBI. In the trustee route, the trustees must give notice to SEBI and publish it in two newspapers. Winding up of the whole mutual fund is a separate event from winding up one scheme. When a scheme is wound up, the trustees must give notice to SEBI and publish it in two newspapers. Trading and dealing in units stops, the assets are sold, and the proceeds go to unitholders in proportion to their units after expenses and liabilities are paid.

Unitholder rights follow from ownership. You have a right to receive statements, annual reports and scheme information, to receive redemption proceeds and dividends within the prescribed time, and to inspect key documents. You also have a right to be told about changes to the scheme. For a merger that changes fundamental attributes, and for other fundamental attribute changes, unitholders must get notice and an exit option of 30 days at the prevailing NAV without exit load. On winding up, unitholders vote only on the unitholder-resolution route, which needs a three-fourths majority of those present and voting. In the other routes, they are informed rather than asked to vote.

Remember the logic: the AMC proposes, the trustees approve, SEBI oversees, and unitholders are informed and protected. Exam questions test who does what, and what the unitholder gets.

Key formulas to remember

Reasons for winding up a scheme: Fixed term ends | Trustees' opinion that circumstances warrant it (notice to SEBI and publication in two newspapers) | Three-fourths of unitholders present and voting pass a resolution | SEBI directs it; The four routes that appear most often in questions. In the trustee route, the trustees decide and then give notice to SEBI and publish it in two newspapers. Do not add AMC discretion as a stand-alone reason.
Unitholder resolution majority: Resolution for winding up = at least three-fourths (75%) of unitholders present and voting; Majority of those present and voting, not of all unitholders. A simple majority is a trap option. This vote applies only to the unitholder-resolution route.
Exit option on mergers and fundamental changes: Notice to unitholders + exit option at prevailing NAV, with no exit load, for 30 days; Applies to a merger or consolidation of schemes that results in a change in fundamental attributes (needs trustee approval and SEBI's observations under the prescribed process), and to other changes in fundamental attributes.
Distribution of winding up proceeds: Proceeds ÷ units outstanding = amount per unit (after liabilities and expenses); Each unitholder receives in proportion to units held.
Key unitholder rights: Information | Vote on specified matters | Proceeds and dividends on time | Exit on mergers and fundamental changes; A quick checklist to match against any option.

How to solve Scheme Mergers, Closure and Unitholder Rights questions

Most questions ask who decides, what notice is needed, or what unitholders receive. Use a fixed sequence so you do not mix up merger, winding up and fundamental change.

1Identify the event: merger or consolidation, winding up, or a change in fundamental attributes.
2Identify what the question tests: reason, approval, notice, voting threshold or unitholder entitlement.
3Recall the chain: AMC proposes, trustees approve, SEBI oversees (for a change in fundamental attributes, SEBI's observations are obtained), unitholders are notified.
4For winding up, match the situation to one of the four routes: term end, trustee decision (notice to SEBI and publication in two newspapers), 75% unitholder resolution, SEBI direction.
5For unitholder protection, look for the exit option at prevailing NAV without exit load and the 30-day notice period.
6For payout, remember proceeds go to unitholders in proportion to units held, after liabilities.
7Remove options that give the AMC sole power, a simple majority, or the sponsor priority over unitholders.

Quickest way: Four-word recall: Notice, Exit, Vote, Share

When to use it: Use it when you have under a minute and the question is about what protects or pays unitholders.

Notice: unitholders must be told about mergers, winding up and fundamental changes.
Exit: an exit window at prevailing NAV without exit load, for at least 30 days, on fundamental changes.
Vote: 75% of those present and voting for a unitholder resolution to wind up.
Share: proceeds are paid in proportion to units held.

Common mistakes in Scheme Mergers, Closure and Unitholder Rights

Believing the AMC alone can wind up a scheme
The AMC manages the scheme day to day, so it seems to hold all power.
Fix: The trustees protect unitholders and act on winding up, and SEBI can direct it. The AMC cannot decide alone.
Treating the 75% as 75% of all unitholders
The wording sounds like total strength.
Fix: It is three-fourths (75%) of unitholders present and voting.
Forgetting the exit option
Students focus on the merger itself and ignore unitholder protection.
Fix: For a merger or consolidation that changes fundamental attributes, and for any other change in fundamental attributes, unitholders get notice and an exit at prevailing NAV with no exit load.
Thinking the sponsor gets paid first from winding up proceeds
Sponsors set up the fund, so it feels like they rank first.
Fix: Liabilities are met first, and the balance is shared among unitholders in proportion to their units.
Assuming units can be traded as usual during winding up
Students assume markets stay open until the money is paid out.
Fix: Once winding up is notified, dealing in units stops and the assets are realised for distribution.
Confusing merger with a change of AMC
Both involve consolidation and are called restructuring.
Fix: A merger combines schemes. A change of AMC or trustee is a different event. Read the subject of the question.

Worked examples

Example 1

A mutual fund scheme is to be wound up because unitholders voted on a resolution. What majority is needed?
A. Simple majority of all unitholders
B. Three-fourths (75%) of unitholders present and voting
C. 51% of units held by the sponsor
D. Unanimous approval of all unitholders

Show the solution

The topic is winding up by a unitholder resolution.
Recall the rule: the resolution must be passed by a three-fourths (75%) majority of unitholders present and voting.
Option A uses a simple majority, which is too low.
Option C gives the sponsor control, which is not the rule.
Option D asks for unanimity, which the rules do not require.

Answer: B. Three-fourths (75%) of unitholders present and voting.

Example 2

Two schemes are merged and the merger changes the fundamental attributes of one of them. Which statement protects unitholders best?
A. They must stay invested until maturity
B. They get notice and an exit option at prevailing NAV without exit load
C. They are charged an exit load to discourage withdrawals
D. They are informed only after the merger is complete

Show the solution

The merger changes fundamental attributes, so the unitholder protection for such changes applies.
The rule: notice before the change, and a 30-day exit window at prevailing NAV without exit load.
Option A removes the right to leave, so it is wrong.
Option C penalises exit, which is the opposite of the rule.
Option D gives notice after the event, so it is wrong.

Answer: B. Unitholders get notice and an exit option at prevailing NAV without exit load.

Exam tips

Learn the four routes to winding up and match the scenario to one of them.
Watch the majority wording: 75% of those present and voting.
When an option mentions an exit load during a fundamental change exit window, reject it.
The AMC proposes, trustees approve, SEBI oversees. Reject options that give the AMC sole power.
Read the verb carefully: merge, wind up and change fundamental attribute are different events.

Practice questions from Scheme Related Information

Scheme Mergers, Closure and Unitholder Rights: frequently asked questions

What are the grounds for winding up a mutual fund scheme?

A scheme can be wound up when its term ends, when the trustees are of the opinion that circumstances warrant it, when three-fourths of unitholders present and voting pass a resolution, or when SEBI directs it. In the trustee route, the trustees give notice to SEBI and publish it in two newspapers.

What do unitholders receive when a scheme is wound up?

The assets are sold and liabilities are paid. The balance is distributed to unitholders in proportion to the units they hold.

Do unitholders get to leave when schemes merge?

Yes, when the merger or consolidation results in a change in fundamental attributes. It needs trustee approval and SEBI's observations under the prescribed process. Unitholders get notice and a 30-day exit option at prevailing NAV with no exit load.

What are the main rights of mutual fund unitholders?

You have the right to information such as statements and reports, to timely redemption proceeds and dividends, to vote on specified matters, and to proportionate proceeds on winding up.