SEBI’s move to allot NAVs after realisation of funds will deter large investors from splitting applications to get same day’s NAV.
In order to ensure fair treatment to existing investors, SEBI has said that AMCs will have to allot NAVs to investors only after they receive the funds for investments of Rs 2 lakhs and above. The move helps existing investors as NAVs will only be allotted only after AMC receives money from new investors. Earlier, new investors were getting the benefit of same days NAV at the cost of existing investors.
“Allotment of units on realization of invested amount results in according fair treatment to existing investors. Allotment based on application results in sharing of returns to the new investor without him having contributed any amount to the corpus. Tracking realization of amounts is operationally difficult in case of applications through cheques since Bank’s MIS may not be as robust and AMC’s have to invest in systems and processes to ensure that an investor is allotted units promptly on realization of his invested amount. Also volume of missed transactions is not increased which will bring volatility in NAV,” says Jimmy Patel, CEO, Quantum Mutual Fund.
Barring cases where investment ticket size is Rs 1 crore or above in debt schemes, all other schemes allot NAVs of the same day if the application and cheques are received before the cut off time.
“Fund houses are already following this practice in debt funds. We’ll get to deploy funds at least on T+1 basis. It will deter investors from timing the market. Now once the bank alerts us that money is credited we’ll allot the NAV. If a large number of investors invest get the same day’s NAV and we receive funds after two days then it eats into existing investors returns,” says an operations head of a private sector fund house.
With SEBI cutting the investment limit at Rs 2 lakh and above, investors will now use RTGS to get the same day’s NAV .
“With the proposed change of allotting units upon realization of funds for investments of Rs 2 lakhs & above, investors will prefer doing online payments through RTGS to get the benefit of same days NAV against physical cheques. This will help the distributors and AMCs in reducing their operational challenges & service investors in a cost efficient manner. Motivation to split applications will almost disappear. It’s a win – win situation for all the stakeholders. If you give a cheque to bank today towards a fixed deposit, the bank will only pay interest to you after it realises the funds. The proposed change assumes greater significance given the fact that capital markets are far more volatile,” says D Ramanathan Sr. VP & National Head – Sales & Distribution, Motilal Oswal AMC.
