Mutual Funds: Fund Realisation Based NAV Applicability Extended to 1 Feb

The Securities and Exchange Board of India (SEBI) has extended the date for implementation of framework for uniformity in applicability of net asset value (NAV) across various schemes on the realisation of funds to 1 February 2021.

The change in NAV calculation rule for uniformity in applicability of NAV across various mutual fund schemes on the realisation of funds was supposed to be implemented from 1 January 2021.

The decision to extend the date has been taken upon consideration of the representation received from the Association of Mutual Funds in India (AMFI) regarding operational challenges, the market regulator said on Thursday.

In a circular issued in September in respect of the purchase of units of mutual fund schemes (except liquid and overnight schemes), SEBI had said that closing NAV of the day will be applicable on which the funds are available for utilisation irrespective of the size and time of receipt of such application.

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.