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SEBI has released new circular applicable from January 2021 stating that mutual fund units should be allotted at the NAV of the day on which funds are realised and ready for deployment.
Current Scenario:
Currently, for the investment of less than Rs.2 lakh, the investor can get the same-day NAV if the application is submitted before 1 pm, no matter when AMCs realise the funds. Suppose an investor gives a cheque for an amount of less than Rs.2 lakh, then though cheque clearance will take 2-days, mutual fund units need to be allotted as per the same day’s NAV.
Those who submit the purchase order of more than Rs.2 lakh will get the NAV of the day when the fund house realises funds. Fund realisation used to take 2-3 days sometimes, and that much delay was getting added in allotment of mutual fund units.
What was the problem?
Many investors put in multiple cheques of Rs.1.99 lakh per application to take advantage of same-day NAV loophole in a rising market. If the markets are falling, some investors used to dishonour the cheques, thereby causing problems for the mutual fund scheme and its current investors.
What will change from January, 2021?
SEBI has a brought-in uniform policy for all investors irrespective of their investment amount. So from Jan 2021, any investor applying to purchase of any investment amount will get the mutual fund units only when the fund house realises the funds.
So, investors who purchase mutual fund units by cheque for an amount less than Rs.2 lakh will get delayed delivery of their companies. But investors who buy mutual fund units through online payments or E-mandate for their SIPs, there won’t be much different because of this rule because of lower transaction time and instant fund realisation by fund houses.
The current provision remains the same for Liquid and Overnight mutual fund schemes, with a cut-off timing of 12.30 pm. SEBI has not tweaked rules for these schemes in the circular.