Changes In NAV Rules Of Mutual Fund Rules From 1 Jan 2021

In a circular on 17 September, the Securities and Exchange Board of India (SEBI) notified of changes in rules for the calculation of NAV (net asset value) across mutual fund schemes. Changes have also been notified on rules related to operations of mutual fund order placements. These new rules will become effective from 1 January 2021.

NAV calculation

SEBI said that mutual fund schemes shall allot NAV on units on the basis of when the amount is realised irrespective of the size or time of the investments. The provision does not apply to liquid and overnight funds as the realisation of funds on the same day is already required for purchases in such schemes.

At present, mutual fund investors with cheque values of less than Rs 2 lakh per application get the NAV of the product on the same day of purchase, when made before the cut-off time. For investments over Rs 2 lakh, NAV applicable will be of the day the fund house has realised the cheque. This could be up to three days after the cheque is submitted.

Experts believe that the change in rules was brought-in as investors used to put multiple cheques of Rs 1.99 lakh for one application in a rising market to take advantage of the loophole and then dishonour the cheque in a falling market, hurting existing investors in the scheme.

There is no change made to the cut-off timings for applications. If applications for the purchase of schemes, other than liquid and overnight funds, are submitted before 1 pm, you get the same day's NAV while for those after 1 pm next day's NAV is applicable. Before COVID-19, the cut-off was 3 pm.

As per the new circular, the money should also reach the mutual fund house on the same day for that day's NAV to be applicable. Experts believe that this would not be a problem in case of net banking but there could be some lag in case of cheque payment. The change will create a level playing field for investors across mutual fund schemes and experts say it is also likely to increase the use of digital payments.

Mutual fund scheme operations

The latest SEBI circular also tightens rules on mutual fund operations like the use of automation/digitalisation for order management and scheme-wise order placement if a single fund manager is managing multiple schemes.

The market regulator has asked mutual funds to put in place a written policy that provides details on specific activities, role and responsibilities of teams engaged in fund management, dealing, compliance, risk management and back-office with regard to order placement, execution of order and trade allocation among various schemes.

Fund managers of respective schemes will be placing orders for equity and equity-related instruments of each scheme.