AMFI has issued frequently asked questions (FAQs) on NAV applicability rules.
Barring liquid and overnight funds, investors will get NAV once the money reaches the fund house irrespective of the investment amount.
So far, investors get same day NAV if they invest up to Rs.2 lakh before the cut off time. Now, NAV allocation will largely depend on efficiency of the financial system.
Now, let us take a closer look on NAV applicability rules:
What is the new rule on applicable NAV?
Investors will get NAV only after realization of funds in the bank account of mutual fund irrespective of amount of investment.
Simply put, irrespective of time of application and amount, if money does not reach the scheme’s account before the cut off time, investors will not get same day’s NAV.
In addition, if an investor invests his money on Friday after cut-off timing or on Monday before cut-off timing, he will get NAV of Sunday (overnight and liquid funds) and Monday’s NAV (other categories).
Even if your client has invested his money in the morning and for some reason if the money does not reach the fund house before the cut-off time, the investor will not get same day NAV.
Simply put, if your client deposits cheque then realization of funds will be delayed due to time required for cheque deposit, associated settlement system in banks and so on.
Similarly, in online transactions, realization of funds depends on your clients’ bank efficiency.
However, fund house will allot NAV even if it does not get reporting from banks. At times, banks transfer money to fund houses but delay reporting. In such a scenario, fund houses can buy units from pooled account and allocate the units later to your clients.
Please note that the brokerage will generate only after allotment of units to the investors. It has nothing to do with NAV applicability date.
Will the new rules be applicable on SIPs/STP?
The new norms will be applicable in all transactions - be it fresh purchase, redemption, SIP and so on.
How will the applicable NAV be determined, if the subscription money is transferred / credited to mutual fund account first and the application / transaction is received subsequently?
If an investor invests his money and submits application form later, the fund house will follow time-stamping rules to allocate NAV i.e. the applicability of NAV will depend on the time of realization of funds. In such a scenario, investors will get same day NAV if the fund house receives money before cut-off time and next day NAV if realization happens after cut-off time.
Illustrations to explain the new applicable NAV rule
Lump Sum purchase transaction for say, Rs. 50,000 received (time stamped) before cut-off time of 3.00 p.m. on Thursday 11-Feb-2021. If the if the funds are received in the mutual fund’s account before cut-off time of 3.00 p.m. on 11th February 2021, the investor will be allotted closing NAV of 11-Feb-2021. However, if the funds are received in the mutual fund’s bank account at say 5.00 p.m. on 11th February 2021, i.e., after the cut-off time of 3.00 p.m., the allotment of units will be done at the NAV of Friday 12-Feb-2021.
However, if the funds are received at say 4.00 p.m. on Friday 12-Feb-2021, the units will be allotted at the closing NAV of Monday 15-Feb-2021 (Feb. 13 & 14 being Saturday & Sunday - non-business days). In short, the units are allotted at the NAV of the business day on which the funds are received in the mutual fund account before applicable cut-off time.
Similarly, even if an investor has given a standing instruction for SIP, systematic transaction will depend on realization of funds by fund houses.
Assuming an investor has signed up for SIP transaction of say, Rs. 5,000 to be debited on 10th of every month. The investor would be allotted the SIP units at the NAV for 10th only if the money is received/credited to the mutual fund’s bank account before 3.00 p.m. on 10th. Else, the SIP units will be allotted units at the NAV of the next business day on which funds are received before the cut-off time.
What is the applicable NAV for switching of Units?
NAV allotment on MF switches will depend on the time the money reaches the scheme’s bank account.
While inter scheme switches generally happen in a day that too before cut off timing, at times, it gets delayed due to banking system. In such a scenario, the NAV allotment will depend on the time of realization of funds.
