Mutual Fund Buying Rules Changed – Same Day NAV Applicable

The SEBI, or the Securities and Exchange Board of India, is a regulatory body that handles all rules and regulations when it comes to mutual funds. All mutual fund houses have to register with the SEBI and follow their rules. On September 17, 2020, the SEBI released a circular that detailed a few changes for mutual fund investors relating to the NAV or Net Asset Value.The Net Asset Value is the per unit value of the mutual fund. All mutual fund investors can see the NAV of their invested fund on a per day basis. The value can go up and down every day. So, when an investor purchases unit of a mutual fund, they’re allotted the NAV for the mutual funds. The new rules state that the NAV for all mutual funds must be allotted to the investor on the same day the invested money is received by the fund house.

The SEBI circular states the following: “It has been decided that in respect of the purchase of units of mutual fund schemes, closing NAV of the day shall be applicable on which the funds are available for utilization, irrespective of the size and time of receipt of such application.” This new rule is applicable from 1st January 2021.Let us understand this further.

Present NAV Rules

The present NAV rules are based on whether the investment amount is lower or higher than Rs. 2 lakh. Investments lower than 2 lakh In case the investment is lower than 2 lakh, if the application of the investment is submitted before the cut-off time of 1 pm, then the NAV is allocated for the same day irrespective of whether the actual funds are realised.If the application is submitted after the cut -off time of 1 pm, then the investor will get the next day’s NAV. Investments higher than Rs. 2 lakh For investments higher than 2 lakh, the current rules state that the NAV the investor will get will be of the day when the funds are received.

New NAV Rules from 1st January 2021

The new rules have removed the Rs. 2 lakh bases for NAV allotment. According to the circular, all investments, irrespective of their size, shall be allotted the NAV on the same day when the funds are received by the AMC. Now the receipt of just the application would not give you the NAV, the actual funds have to be realised.For example, if you invest an amount of Rs. 2 lakh on Monday via cheque, wherein you submit the application on Monday, according to the present rules, you would be allotted the NAV as on Monday itself, even when you’re cheque will not have been cleared and the fund house would be yet to receive your investment.According to the new rules, however, when you invest Rs. 2 lakh and submit your cheque and application on Monday, the NAV would only be allotted when your cheque is cleared and the AMC receives your money, even if that happens on Tuesday or Wednesday.There are no changes in the cut-off timings of the application process itself. Liquid and Overnight Funds: The NAV rules for Liquid and Overnight Funds are the same as before and no changes have been made to those funds.A few other changes in the SEBI circular are as follows. Equity and Equity-Related Orders The SEBI has also changed how mutual funds operate by tightening order management and scheme-wise order placement of mutual funds. Mutual fund houses will now implement an Order Management System (OMS), where the fund managers will place the orders for individual mutual fund schemes. In case one manager is handling more than one fund, they will have to place scheme-wise orders. Compliance Monitoring System The SEBI has also instructed all AMCs to implement a compliance monitoring system that monitors whether the new rules are being followed. Details of order placement, allocation and trade execution and all preceding activities will now be recorded and audited.

Thus, the new rules may bring up a few problems for investors. Investors who especially file their application very close to the cut-off time. For such applications, it would take some time to get the order through which might result in the NAV not being allotted on the same day. Similarly, investments through cheques would take time to clear and the NAV won’t be allotted until that happens. It is said that these minor obstacles may be solved easily if mutual fund investments are made through online channels, since no time would be lost to get the funds to the AMC.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.