Sebi Proposes Change in NAV Cut-off Time for Mutual Fund Overnight Schemes

New Delhi, Jan 20 (PTI) Markets regulator Sebi on Monday proposed a change in cut-off timings to determine the net asset value (NAV) with respect to repurchase or redemptions of units in overnight schemes of mutual funds from 3 pm to 7 pm.

The proposed change, if implemented, will allow time for stock brokers (SBs), or clearing members (CMs) to un-pledge units of Mutual Fund Overnight Schemes (MFOS)and place redemption requests with mutual funds, after the close of market hours, Sebi said in its consultation paper.

Investment in MFOS is a new avenue made available to stock brokers or clearing members to deploy client funds and ensures minimal risk transformation of client funds because of overnight tenure and exposure to only risk-free government securities.

SBs/CMs ensure that client funds are invested only in such MFOS that deploy funds into risk-free government bond overnight repo markets and overnight Tri-party Repo Dealing and Settlement (TREPS).

Further, such MFOS units are required to be in demat form, and must necessarily be pledged with a clearing corporation at all times.

In its consultation paper, Sebi said, "AMFI and members of the Mutual Funds Advisory Committee (MFAC) have recommended a change in cut-off timings to determine applicable NAV with respect to repurchase (redemption) of units in overnight fund schemes from existing 3 pm to 7 pm".

The Securities and Exchange Board of India (Sebi) has sought public comments on the proposal till February 10.

Sebi noted that the overnight schemes receive money invested in securities with one-day maturity on the next working day.

"For meeting redemption requests, the overnight schemes don't have to make any sale transaction before market hours. Instead, the overnight schemes, based on redemption requests, may decide not to reinvest the maturity proceeds to be received on T+1 settlement date.

"Since the money has to be invested every day, for the amount of redemption requests received on T-day, such amount is not-reinvested on T+1 day and instead is used for payouts. Due to this, the timeline of redemption, whether being 3 pm or 7 pm shall not impact the funds' valuation or capability to redeem investments," the regulator added.