Hello Readers!
Hope you all are safe from the COVID-19 pandemic!
Recently SEBI (Security Exchange Board of India) come up with some changes regarding the purchase and the allotment of mutual fund units.
What’s New From SEBI?
As per the circular mandated by SEBI:
“In respect of the purchase of units of mutual fund schemes (except liquid and overnight 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”
The new circular will come in to effect from 1st January 2021.
What Does The New Circular Mean?
If we look over the present circular for purchase and allotment of mutual fund units, then it states that if you submit an application to the mutual fund company on a working day (before the cut-off time), you will be allotted units the same evening, at that day’s NAV. Even though your cheque would take 2-3 days to process and your mutual fund company or AMC will receive the money after 2-3 days. This circular is applicable for investment up to Rs 2 lakhs.
The new circular mandated by SEBI states that now the mutual fund units will be allotted to investors portfolio by the mutual fund company on the day they receive the money from investors, as per that day’s NAV.
Well, this rule was already enforced by mutual fund companies for transactions through digital platforms. The new circular has been mandated to relax for investments via cheque and paper application forms.
So basically, investors should prepare themselves for their investments that will happen 1-2 days after money moves out of their bank account.
How Is This New Circular Going To Affect You?
We believe that this new circular is not going to affect you hard and is of not much importance as the exact date of allotment of mutual fund units is not going to impact your investment for the long-term. If you are doing a SIP, you don’t really know what the market condition would be on any given day in the future.
With the current circular applicable, a cheque takes 2-3 days to process and transfer the money to the mutual fund company, but the investors would start participating in fund growth from the day of application. This was taken as unfair to existing investors in the fund. And thus, this new circular is mandated by the SEBI to create a level playing field and should be welcomed by investors as a fair rule.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee of future returns).