Sebi extends deadline for public comments on swing pricing mechanism proposal for MFs

By: |
August 20, 2021 6:02 PM

In the consultation paper, the regulator has proposed introducing swing pricing mechanism for open-ended mutual fund debt schemes as part of efforts to ensure fairness in treatment of investors, especially during times of market dislocation.

"Mandating swing pricing during market dislocation will lead to better predictability, transparency and effectiveness of the said mechanism," Sebi said."Mandating swing pricing during market dislocation will lead to better predictability, transparency and effectiveness of the said mechanism," Sebi said.

Markets regulator Sebi on Friday extended the deadline till August 25 for submission of comments on the proposal to introduce swing pricing mechanism for open-ended mutual fund debt schemes.

On July 19, the watchdog had issued a consultation paper for introduction of the swing pricing mechanism and the last date for submission of public comments on the paper was August 20.

“It has been decided to extend the timeline for submission of comments to August 25, 2021,” the Securities and Exchange Board of India (Sebi) said in a statement.

Generally, swing pricing refers to a process for adjusting a fund’s net asset value to effectively pass on transaction costs stemming from net capital activity to the investors concerned.

In the consultation paper, the regulator has proposed introducing swing pricing mechanism for open-ended mutual fund debt schemes as part of efforts to ensure fairness in treatment of investors, especially during times of market dislocation.

The regulator has suggested partial swing during normal times and a mandatory full swing during times of market dislocation. The proposals are aimed at ensuring fairness in treatment of entering, exiting and existing investors in mutual fund schemes.

In a liquidity-challenged environment, quoted bid/ ask spreads and overall trading cost can widen and may not be representative of the executed prices that can be achieved in the market.

The proposal was to mandate swing pricing for high risk open-ended debt schemes during market dislocation as they carry high risk securities compared to other schemes which possibly have higher costs of liquidation.

“Mandating swing pricing during market dislocation will lead to better predictability, transparency and effectiveness of the said mechanism,” Sebi said.

In subsequent phases, Sebi will examine the applicability of swing pricing mechanism to equity schemes, hybrid schemes, solution-oriented schemes and other schemes.

Under the proposal, swing pricing should be made applicable to all unitholders with an exemption for redemptions worth up to Rs 2 lakh for all unitholders and up to Rs 5 lakh for senior citizens at a mutual fund level. This is in order to keep retail investors and senior citizens insulated from the applicability of swing pricing to a certain extent.

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