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 1:00 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 7 Banks –

  • HDFC Bank
  • Axis Bank
  • ICICI Bank
  • SBI Bank
  • Kotak Mahindra Bank
  • IDBI 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 –

Scheme Type Business Days
Liquid Funds
T+1
Debt Funds
T+2
Equity Funds
T+3
International Funds
T+5 or more

 

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?

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

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. 


7 Responses

  • Alok

    December 31, 2020 AT 09:13

    Hi Gaurav

    Thanks a lot for this article, it makes a lot of things clear.
    One further question that I have is
    let’s say my(one click mandate) SIP date is 5th of every month and that heppened to fall on a Saturday.(Although the bank transaction can happen on a Saturday )
    How would this transaction take place?


    • Gaurav Rastogi

      January 2, 2021 AT 04:01

      If money reaches the AMC by Monday cutoff you will get Monday NAV.


  • King

    December 31, 2020 AT 10:53

    Please allow SIP through UPI auto pay. This is needed now.


  • Santhosh

    January 2, 2021 AT 20:24

    Hi,
    Thanks for the detailed article. I am just thinking about how it would impact Tax Harvesting feature. So, it would be suggested to use netbanking (preferably direct) for the buy orders. Isn’t it?


    • Gaurav Rastogi

      January 18, 2021 AT 12:00

      Yes pls use netbanking.


  • Pankaj

    January 6, 2021 AT 13:59

    Hi Gaurav,
    Nice article. I would have sworn that I posted the below question earlier too, but here goes
    If I use NEFT/RTGS as a payment mechanism from a Nodal bank ensuring that funds are received by ICCL before cutoff time, will I get same day NAV?

    What is ICCL’s time overhead to transfer NEFT/RTGS funds to the AMC? Thanks for your response.


    • Gaurav Rastogi

      January 18, 2021 AT 05:50

      Yes if they receive funds before the cutoff time, you will get same day NAV.