Liquidity Risk Management Framework of Mutual Funds

The possibility of repurchasing the investment units issued by the fund is a distinctive feature of open-end mutual funds, which exposes these funds to liquidity risk. The main challenge of liquidity management of these funds is providing cash during a crisis and also facing more than expected redemption demands. In such a situation, the fund may not be able to sell assets quickly enough without the experience of offering high discounts. Being pressured to finance and sell assets will have an adverse effect on the price of the fund's assets and similar assets in the market, which can lead to a downward spiral at the price of these assets, leading to the invasion of other funds with similar assets and having an adverse effect on the whole market. Therefore, integrated liquidity risk management is vital for these funds and the entire financial system. The current research aimed to achieve a coherent framework in the field of monitoring and managing the liquidity risk of open-end mutual funds. For this purpose, grounded theory was used through various coding stages. In addition, the Delphi strategy was used for the elites’ opinions, and finally, a framework for monitoring liquidity risk management, including policies, infrastructures, and methods, was presented.