Why might this happen?

When investors wish to sell units in mutual funds, there is a risk of the fund being gated.

Why might this happen?
A . To ensure any tax deferral benefits are not lost
B . To ensure that the commission as a proportion of the fund remains small
C . Because the investor has not held the units past the ‘lock-in’ period
D . To allow fund managers to raise enough funds to pay out to those wishing to sell their units

View Answer

Answer: D

Explanation:

Fund Gating:

Gating occurs when fund managers temporarily restrict redemptions to protect the remaining investors and ensure liquidity.

This allows the fund to sell illiquid assets to generate sufficient cash for redemptions.

Elimination of Other Options:

A: Tax deferral benefits are irrelevant to gating.

B: Commission proportions are unrelated to liquidity.

C: Lock-in periods are predetermined and not linked to gating.

Reference: ICWIM Module 3: Focus on fund structures and liquidity management.