When a change in the direct or indirect control of an Asset Management Company takes place, what mandatory communication and investor protection process must be executed?

[ A ]All existing units are automatically liquidated and cash transferred to the Sponsor's bank account.

[ B ]Prior approval of SEBI and Trustees must be obtained, written communication/email sent to every unitholder, newspaper advertisements published, and unitholders given an exit option at prevailing NAV without exit load for not less than 30 calendar days.[ CORRECT ]

[ C ]The AMC is exempt from informing unitholders if the acquiring entity is a foreign corporate bank.

[ D ]Unitholders must pay an exit penalty of 5% if they choose to redeem during the ownership transition period.

Takeaway

Option B is correct: Prior approval of SEBI and Trustees must be obtained, written communication/email sent to every unitholder, newspaper advertisements published, and unitholders given an exit option at prevailing NAV without exit load for not less than 30 calendar days.

Derivation

A change in control of an AMC requires prior approval from SEBI and Trustees. Under SEBI regulations, written communication must be sent to all unitholders, and advertisements published in national English and regional newspapers. Unitholders must be given an exit option window of not less than 30 calendar days to redeem their units at the prevailing NAV without paying any exit load. This question tests the statutory procedure safeguarding unitholders during corporate takeovers. A common error is assuming an acquisition can occur silently without a load-free exit window.

Why the others fail

A — All existing units are automatically liquidated and cash transferred to the Sponsor's bank account.

Unitholder assets remain safely invested in scheme trust accounts and are never automatically liquidated or transferred to sponsors.

C — The AMC is exempt from informing unitholders if the acquiring entity is a foreign corporate bank.

All changes in control require mandatory unitholder notification and SEBI approval regardless of the acquirer's nationality.

D — Unitholders must pay an exit penalty of 5% if they choose to redeem during the ownership transition period.

SEBI strictly mandates that the 30-day exit option must be provided completely free of any exit load or redemption penalty.