With SEBI's new NAV framework, Mu. SIP and check based transactions of funds will be affected

(Commercial Representative) Mumbai, Ta. 19 September 2020, Saturday

Experts are of the view that the systematic investment plans (SIPs) of funds and check-based transactions will be affected as the capital market regulator SEBI has directed mutual funds to allocate units as per the funds received. However, customers who transact on online platforms will not be affected.

With this new framework, SEBI has taken steps to bring uniformity in Net Asset Value (NAV) allocation by discontinuing the investment limit criteria and to introduce a uniform allocation process for any amount of investment. Currently the NAV for allotment of mutual fund units is determined on the basis of the investment amount.

If the investment is less than Rs. 3 lakhs, the units are allotted according to the cut-off time of the time the application is received. If the ticket size is more than Rs. 3 lakh, the allotment of units in the mutual fund houses is the allocation of units in the scheme according to the time the investor's funds come from his account.

SEBI is now scrapping the amount criteria and allocating units on a uniform NAV basis for all transactions. According to the SEBI circular, the closing NAV of the day will have to be taken into account when the funds become available for use in respect of purchase of units of mutual fund schemes (excluding liquid and overnight schemes).

The size of the investment or when the application is received will not be considered. The cut-off timing for applications after Covid-12 lockdown has been fixed at 12:30 pm for liquid and overnight schemes and 1:00 pm for other schemes, which will continue. The new framework will come into effect from January 1, 2021.

Experts believe the new framework will have two major implications. One will be on SIP, which is mostly less than Rs 5 lakh and the units are allotted to them in one or two days after the date of SIP. This is because the investor is allotted according to the date on which his check is debited from the bank or the day after receiving the money. This will affect the NAV estimates of the portfolio tracking software used by investors. The second is through check transactions in which the units are allotted according to the asset management companies if the checks are received by the cut-off time.

The units will now be allotted only after the check is cleared. Customers who use online platforms will not be affected by SEBI's new framework.