Cos need to retune for MFs on T+1
Corporate treasurers will have to rethink their strategy while investing in liquid schemes of domestic mutual funds, once mutual funds move to T+1 settlement from the current T+0, in line with the settlement system in the government securities mar...
By TNN |
MUMBAI: Corporate treasurers will have to rethink their strategy while investing in liquid schemes of domestic mutual funds, once mutual funds move to T+1 settlement from the current T+0, in line with the settlement system in the government securities market.
As per this new settlement cycle, the payment for redemption of scheme units by an investor will happen only the next day. Liquid schemes of domestic mutual funds have been most reliable investment vehicle for corporates to park surplus funds for the short-term.
Earlier, companies could redeem the units on the same day if the application for redemption was placed on the same day before 10 am. Now, companies will have to wait for a day for the payment and delivery to take place.
As per this settlement, investors can place application to redeem before 3 pm on a particular day but will receive the payment only the next day. In this case, the closing NAV of the day of the application would be taken into account. If the application of redemption is received after 3 pm, the next day’s closing NAV would be considered.
This new system comes as a blessing to fund houses and to banks too, as they would have some breathing space in case of mass redemptions in these schemes.
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“Now mutual funds can get a little more organised, as they will get more time to plan their next move in case of some huge redemptions. T+0 were not only a nightmare to mutual funds, but also a strain to the system,” said an industry official. In addition to the change in the settlement cycle, Sebi has given mutual funds more leeway to deploy funds in the market by advancing the cut-off time for purchase of units in liquid fund schemes.Now, a mutual fund can now receive application for liquid fund schemes only up to 12 pm, which was 1 pm earlier. This is a positive thing for fund houses, as they can deploy the funds in the money market on the same day they receive subscription from investors. However, this would mean that investors will have an hour less to subscribe to liquid schemes.
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