Capital market regulator Sebi said that investors in liquid funds would no longer get the net asset value NAV of the day before the application date, if the mutual fund doesn’t get the application and money before 2:00 pm. Sebi, in a circular on Friday, said liquid-fund investors would only get the NAV of the day, just before the day on which the mutual fund has received the money irrespective of the time of submitting the application.
“It is observed that mutual funds are deploying funds without receiving clear funds in the scheme account. As a matter of good practice and to avoid systemic risk, it has been decided to modify certain provisions ,” said Sebi.
The regulator said that investors would be allotted units in liquid schemes only if an application is submitted before 2:00 pm, entire investment fund is credited to the bank account before the cut-off time and the money is available without any credit facility. The same conditions would be applicable for allotment of units during switching to other schemes such as liquid plus or other debt schemes.
Investors in liquid schemes, mainly companies, have widely followed a practice , where they submitted the application before the cutoff time and simultaneously directed the fund house to switch to liquid plus scheme. This helps investors get the previous day’s NAV of the liquid scheme and get returns of the liquid plus scheme of the same day.
Mutual fund officials said that the Sebi move is likely to affect flows into liquid schemes, where companies park their idle money. A top official of a bank-promoted mutual fund, on condition of anonymity, said, “Let’s assume that the investor has made the RTGS payment order at 10:00 am in the morning, but the mutual fund gets it only after the cutoff time of 2:00 pm, the investor will not get the previous day’s NAV. All the more, his money will lie idle with us for a day.” Real-Time Gross Settlement (RTGS) is the fastest way to transfer money between banks.
A fixed income fund manager of another bank-promoted mutual fund said, “Now, there will be bigger fights between fund houses and companies (investors) over the timing. Companies and high net worth investors are never known to transfer money on time and often blame us for the delay.”
According to Dhirendra Kumar of Value Research , the Sebi move could create a logistical problem. “Banks do not have the necessary infrastructure to deliver the funds by 2.00 pm. The Sebi move will basically impair the flexibility to move their money across schemes during the day,” said Mr Kumar. Mutual funds are already reeling under the impact of a Sebi’s move in August 2009 to ban them from charging investors, in their equity schemes, an initial fee to pay distributors. The step has resulted in distributors selling fewer equity schemes. Sebi, in the circular on Friday, also said that interval plans would mandatorily be listed and investors could redeem only during the specified transaction period — the period during which both subscription and redemption may be made to and from the scheme.
“It has been noticed that certain scheme information documents provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged),” the circular said.
“As per the current regulation, there is no restriction on tenure of securities in which interval scheme can invest. This read with daily redemption option may result in asset liability mismatch,” it said.
Source: http://economictimes.indiatimes.com/markets/regulation/Liquid-fund-NAV-lock-possible-only-after-MFs-get-money/articleshow/6998829.cms
“It is observed that mutual funds are deploying funds without receiving clear funds in the scheme account. As a matter of good practice and to avoid systemic risk, it has been decided to modify certain provisions ,” said Sebi.
The regulator said that investors would be allotted units in liquid schemes only if an application is submitted before 2:00 pm, entire investment fund is credited to the bank account before the cut-off time and the money is available without any credit facility. The same conditions would be applicable for allotment of units during switching to other schemes such as liquid plus or other debt schemes.
Investors in liquid schemes, mainly companies, have widely followed a practice , where they submitted the application before the cutoff time and simultaneously directed the fund house to switch to liquid plus scheme. This helps investors get the previous day’s NAV of the liquid scheme and get returns of the liquid plus scheme of the same day.
Mutual fund officials said that the Sebi move is likely to affect flows into liquid schemes, where companies park their idle money. A top official of a bank-promoted mutual fund, on condition of anonymity, said, “Let’s assume that the investor has made the RTGS payment order at 10:00 am in the morning, but the mutual fund gets it only after the cutoff time of 2:00 pm, the investor will not get the previous day’s NAV. All the more, his money will lie idle with us for a day.” Real-Time Gross Settlement (RTGS) is the fastest way to transfer money between banks.
A fixed income fund manager of another bank-promoted mutual fund said, “Now, there will be bigger fights between fund houses and companies (investors) over the timing. Companies and high net worth investors are never known to transfer money on time and often blame us for the delay.”
According to Dhirendra Kumar of Value Research , the Sebi move could create a logistical problem. “Banks do not have the necessary infrastructure to deliver the funds by 2.00 pm. The Sebi move will basically impair the flexibility to move their money across schemes during the day,” said Mr Kumar. Mutual funds are already reeling under the impact of a Sebi’s move in August 2009 to ban them from charging investors, in their equity schemes, an initial fee to pay distributors. The step has resulted in distributors selling fewer equity schemes. Sebi, in the circular on Friday, also said that interval plans would mandatorily be listed and investors could redeem only during the specified transaction period — the period during which both subscription and redemption may be made to and from the scheme.
“It has been noticed that certain scheme information documents provide that the subscription to the scheme can be made during a specific period (known as specified transaction period) and the repurchase of units is permitted on all business days subject to applicable loads (except for redemption during specified transaction period when no load is charged),” the circular said.
“As per the current regulation, there is no restriction on tenure of securities in which interval scheme can invest. This read with daily redemption option may result in asset liability mismatch,” it said.
Source: http://economictimes.indiatimes.com/markets/regulation/Liquid-fund-NAV-lock-possible-only-after-MFs-get-money/articleshow/6998829.cms
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