SEBI has announced new cut-off timings for determining the net asset value for repurchase or redemption of units in overnight mutual fund schemes. These changes aim to give stockbrokers and clearing members more time to un-pledge units and submit redemption requests after market hours.
For applications submitted by 3 pm, the NAV of the day before the next business day will apply. For those submitted after 3 pm, the NAV of the next business day will apply. Online applications will have a cut-off time of 7 pm for overnight schemes. These new timings will take effect from June 1.
Mutual Fund Overnight Schemes offer stockbrokers and clearing members a safe way to deploy client funds with minimal risk, as they invest in risk-free government securities with overnight tenure. These units must be held in demat form and pledged with a clearing corporation at all times.
SEBI’s January consultation paper highlighted that overnight schemes invest in securities with one-day maturity, and funds are received on the next working day.
“For meeting redemption requests, the overnight schemes don’t have to make any sale transactions before market hours. Instead, the overnight schemes, based on redemption requests, may decide not to reinvest the maturity proceeds to be received on the T+1 settlement date.”
“Since the money has to be invested every day, for the amount of redemption requests received on T-day, such amount is not reinvested on T+1 day and instead is used for payouts. Due to this, the timeline of redemption, whether being 3 pm or 7 pm, shall not impact the funds’ valuation or capability to redeem investments,” the regulator had stated.
(With PTI Inputs)
