MFs get some more room to deploy funds in the mkt
The Securities and Exchange Board of India (Sebi) has given mutual funds more elbowroom to deploy funds in the market by advancing the cut-off time for purchase of units in liquid fund schemes.
By TNN |
MUMBAI: The Securities and Exchange Board of India (Sebi) has given mutual funds more elbowroom to deploy funds in the market by advancing the cut-off time for purchase of units in liquid fund schemes.
This follows the Reserve Bank of India’s (RBI) decision to discontinue the overdraft facility.
According to the new norms, a mutual fund can now receive application for liquid fund schemes only up to 12 pm, as against 1p.m. earlier, a Sebi circular said.
While investors will have an hour less to subscribe to liquid schemes, fund houses stand to gain, as they can deploy the funds in the money market on the same day they receive subscription from investors.
Under the Real Time Gross Settlement (RTGS) payment system, transfer of high value cheques takes 2-3 hours. This leaves mutual funds with little time to invest the money in the overnight Collaterised Borrowing and Lending Obligations (CBLO) segment. Mutual funds will now have an hour more and can comfortably deploy the money through CBLO.
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RTGS is a system in which payment instruction between banks are processed and settled individually on the same day of the transaction. Collaterised Borrowing and Lending Obligations (CBLO) is an avenue to invest money in the very short-term, where all transactions are guaranteed by the Clearing Corporation of India (CCIL). The overdraft facility from RBI enabled mutual funds to deploy idle funds and improve their return on investments. The move to withdraw this facility would have affected fund houses, especially the ones with liquid funds.
Going back to the new norms by Sebi, if a mutual fund receives application for liquid fund schemes till 12 pm and funds are available for utilisation on the same day, the closing net asset value (NAV) of the preceding day would be applicable.
If the application is received after the stipulated time and funds are available for utilisation on the same day, the closing NAV of the same day would be taken.
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For repurchase of units in liquid schemes by mutual funds, in case the application is received up to 3 pm, the closing NAV of the same day would be applicable and if it is received after 3 pm, the next day’s closing NAV would be taken, the regulator said.Download
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