Mutual Funds: Sebi extends date for implementation of framework on uniformity in applicability of NAV

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December 31, 2020 10:38 PM

Sebi, through its circular in September, had said that all orders of fund managers need to be received by dedicated dealers responsible for order placement and execution.

Sebi has also partially modified its circular issued in September.

Markets regulator Sebi on Thursday extended the date for implementation of framework for uniformity in applicability of net asset value (NAV) across various schemes on realisation of funds to February 1, 2021 .

The regulator, in September, came out with framework for uniformity in applicability of NAV across various schemes on realisation of funds and the provision was to come into effect from January 1, 2021.

In respect of purchase of units of mutual fund schemes (except liquid and overnight schemes), Sebi had said that closing NAV of the day will be applicable on which the funds are available for utilisation irrespective of the size and time of receipt of such application.

Currently, NAV for allocation of mutual fund units is based on investment amount. For investment below Rs 2 lakh, allotment of units is based on time of receipt of application within the cut-off time.

In case, the ticket size is above Rs 2 lakh, mutual fund houses allot units on realisation of funds—when the scheme receives investor funds in their account.

The decision to extend the date has been taken upon consideration of the representation received from the Association of Mutual Funds in India (AMFI) regarding operational challenges, Sebi said on Thursday.

“Sebi’s deferment has provided some relief to the industry as this would allow adequate time to first migrate all banking arrangements to be in compliance with the RBI circular, before taking up the necessary changes in order to comply with the…Sebi circular,” a statement issued by AMFI said.

As per the statement, AMFI had requested Sebi to defer the effective date for implementation of the provision on uniformity in applicability NAV from January 1, 2021, so as to prevent potential disruption of service to investors and mitigate the hardship being faced by mutual funds.

The request was made in light of certain circulars issued by the central bank, which have posed significant unexpected challenges and implications on the banking arrangements of mutual funds, AMFI said.

N S Venkatesh, chief executive, AMFI said, “AMCs have multiple payment and collection accounts/facilities for collections, redemption, dividend, custody, intra-day, borrowing etc. with numerous banks.

“To meet the requirement of the…RBI circulars, mutual funds would need to change their operational process/restructure the banking operations/facilities/ relationships with banks at a very short notice.”

This would involve consolidation of banking relationships, change/withdrawal of facilities, among others, which could potentially hamper the collection process, he said.

“SIPs will be particularly impacted significantly as investors were accustomed to getting the same day NAV allotment as most SIPs are below Rs 2 lacs. Keeping in mind the best interest of such retail investors, Sebi has deferred the NAV applicability circular by a month,” he added.

Sebi has also partially modified its circular issued in September.

It said a fund manager may authorize an employee of the asset management companies (AMCs) for order placement of equity and equity related instruments of each scheme on his behalf, subject to certain conditions.

AMCs shall use an automated order management system (OMS) wherein the orders for equity and equity related instruments of each scheme shall be placed by the fund managers of the respective schemes, Sebi had said in its earlier circular.

“Further, the orders in case of arbitrage transactions, stock lending and borrowing transactions, passive schemes (such as Index Funds and ETFs) and schemes investing primarily based on pre-defined rules and models, where the discretion of the fund manager is not required for placement of order, is not mandated to be placed through OMS,” Sebi added.

This is also subject to certain conditions.

Sebi, through its circular in September, had said that all orders of fund managers need to be received by dedicated dealers responsible for order placement and execution.

In its latest circular, Sebi said the requirement of a dedicated dealer shall not be mandatory in case of orders for arbitrage transactions, stock lending and borrowing transactions, passive schemes (such as index funds and ETFs) and schemes investing primarily based on pre-defined rules and models.

“All other conditions specified in Sebi circular dated September 17, 2020 shall remain unchanged,” it said.

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