NAV applicability norms in Mutual Funds from 01-Feb-21

These changes were earlier scheduled to be implemented from 1st Jan 21, the same has been extended to 1st Feb 21 by SEBI.

What’s changing? 

In short: From 1st Feb 21, Net Asset Value (NAV) date applicable to all mutual fund purchases will be the date on which funds are received by the fund house (or AMC).

Earlier fund houses could provisionally allot units at the NAV of the order placed date while the funds would come in later through the payment systems. Provisional Allotment was done only for non-liquid non-overnight fund orders below Rs 200,000. This provisional allotment is now discontinued.

This change is pursuant to a circular published by SEBI amending the existing NAV applicability norms. Irrespective of the order size, NAV applicable to all mutual fund purchases will be dependent on the time of realization of funds.

How does this impact me?

You may not get same day NAV if you use payment modes other than Net Banking(Direct) or UPI. The time taken for the realization of funds depends on the payment mode (more about this below).

But, why are my funds not reaching the AMC instantly?

Let’s first see how funds flow when you place a purchase order in mutual funds. Here, we have explained typical funds flow with net banking as the payment mode.

Two things to note here –

1/ Transaction processing involves multiple steps.

2/ We use BSEStarMF as our transaction partner. Hence, we never receive your funds in our own accounts. Funds go from your account to BSE and thereon to the AMC. This helps us in streamlining funds flow and eliminating any possible delays at our end.

While the deduction might start reflecting in your bank account right after completing payment, it takes time for the AMC to receive funds. The time taken for the realization of funds depends on the payment mode you choose.

When should I expect fund realization in case of lumpsum orders?

Here, T is the day on which the order was placed within the cut-off timings. For Liquid and Overnight fund orders, the cut-off time is 12:30 PM. For all other funds, the cut-off time is 2:30 PM. Orders placed after the cut-off time are considered as orders of the next business day.

What is Direct and Nodal in Net Banking? 

Direct in Net Banking refers to transfers where you and the beneficiary, in this case BSEStarMF, have accounts within the same bank. At present, BSE supports direct Net Banking with 6 Banks –

• HDFC Bank
• Axis Bank
• ICICI Bank
• SBI Bank
• Kotak Mahindra Bank
• Yes Bank

All other banks other than those above are referred to as Nodal Banks.

Funds transfer are faster for direct net banking transfers and can take upto 2 business days for Nodal banks depending on the bank you use.

When should I expect fund realization in case of SIP orders?

Here, T is the scheduled SIP order day.

You can find your mandate type in the bank section in your Kuvera account.

Will there be any impact on Switch and STP orders? 

Yes, think of switch and STP orders as a combination of redemption & purchase orders. Units are redeemed from the fund you are switching out from and units are purchased in the fund you are switching in to. NAV of the order day will continue to apply to switch out orders. Switch in orders will get processed only after the switch out leg settles.

So, if you are switching into a fund – “B” from equity fund – “A” with a redemption cycle of 3 business days. NAV of order day will apply to the switch out order from the fund – “A”. NAV of T+3 business days will apply to the switch in order in the fund – “B”.

Redemption/switch-out cycle depends upon the category of fund you are switching out from –

Will there be any impact on my redemption and SWP orders? 

No, there will be no impact on your redemption and SWP orders. They will continue to get processed with the NAV order date.

Can I do anything to minimize the difference between the order date and the NAV date for my SIP orders?

Yes, If you have any existing SIPs linked to BillPay mandates, then register a OneClick mandate and shift SIPs to the same. 

We have historically noticed OneClick mandate based SIP deductions to be more predictable than BillPay mandates. With OneClick mandate, more often than not, the credit confirmation becomes available within 1-2 business days of SIP date. With BillPay mandate, the credit confirmation date can be anywhere upto 5 business days from SIP date.

If you don’t already have one, you can set-up a OneClick mandate on the bank page on Kuvera. Once you have a registered OneClick mandate, you can reach out to us here and we will help you shift all your SIPs to the OneClick mandate. 

Can I do anything to minimize the difference between the order date and the NAV date for lumpsum orders?

You can follow these thumb rules-

• Use Net Banking for placing lumpsum orders.
• If you have an account with one of the 7 banks where BSE accepts Direct Net Banking transfers, then use that bank.
• Avoid using a OneClick mandate for lumpsum orders if any other payment mode is available to you.
• Refrain from waiting till the cut-off time for placing your orders.

How should I interpret the orders details shown on Kuvera while my order is under processing?

You can track your orders on Kuvera in the “Pending” order section. You will see details such as order date, bank name and most importantly expected NAV.

The expected NAV date we show is a conservative estimate after taking into consideration multiple factors such as your bank, payment method, order type etc. The actual NAV applicable to your order will still be dependent on the time at which the AMC receives the credit confirmation. Once we receive the allotment confirmation from the AMC, the actual NAV date will get updated to your order.

Please Note: The expected timelines shared in this note are based upon the generally observed time taken for fund settlement. The actual timeline in some cases might differ from the expected timeline shared here.