Posted on 25th Dec 2020
Fund Buying Price
When we invest money in mutual fund schemes, the units are allotted to us based on the NAV date and the rules
with respect to buying units is changing now. As per SEBI, the new rules are to be implemented from 01/01/2021. Let us understand this better in this article.
Components determining NAV
buying price date
There are three essential elements which usually determines the NAV date of
the purchase price of units.
1.
The date we
submitted the application with relevant documentation
2.
The date and time when our investment money reached the fund management team
3.
The type of fund we are buying
SEBI has specified cut off time depending upon the type of fund. It is
very important as to when the application is submitted, if it is before or after the designated cut off time.
Grouping of funds with
respect to cut off time
All the funds can be grouped into two categories. The first category includes
liquid and overnight funds. All other funds are included in the second group.
In the first group, no changes have been made to the purchase price of liquid and overnight funds. Second group
is subject to change with effective from 01/01/2021.
Determining NAV date for
purchase price of second group
Pre-Lockdown Purchase NAV Calculation method
In this method, NAV date will be arrived based on the date of submitting the application
and whether it is submitted before or after the cut off time and
if the investment amount is below or above 2 lakhs.
Proposed Purchase NAV date Calculation method from 01-01-2021
In the new process, the investment amount being above or below 2 lakhs does
not matter. Another major change is instead of giving weightage to date of
application, now the NAV date will be determined based on when the money
reached the fund management team.
The following table provides
how the NAV date will be arrived for all funds except liquid and overnight
funds under various scenarios
|
Day/Date of Application for
Investment |
Is the
application submitted before or after the cut off time of 3 PM |
Day/Date of Money received at Fund
Management |
Is the Money received at Fund Management before or after the cut off time of 3 PM |
Date/Date of NAV considered for purchase
of units |
|
Monday |
Before |
Monday |
Before |
Monday |
|
Monday |
Before |
Monday |
After |
Tuesday |
|
Monday |
After |
Tuesday |
Before |
Tuesday |
|
Monday |
After |
Tuesday |
After |
Wednesday |
|
Mon/04-01-2021 |
After |
Thursday/07-01-2021 |
After |
Friday /08-01-2021 |
Impacts of Change
These one or two-days NAV changes will not have much
impact on long-term investment for stakeholders. At the same time, the current option available for small investors to get
same day NAV is gone for good, except they can make purchase and payment online
and ensure payment is done before cut of time as shown in row 1 of the above
table. Buying units on the same day when market crashes is going to be
difficult for most of the investors.
Things to Remember
The difference between the date of application and date of money received
at fund management team is going to be varied from one day to few days. If the
purchase and payment is made online and ensured both succeeds before cut off
time, then it is possible to get same day NAV as shown in row 1 of above table.
But if there is some delay at the bank or some intermediary level, then as
shown in row 5 it could take a couple of days or more.
Reasons for delay in payment receipt by
fund management team
1.
Payment Method: Paying directly to the fund house or through third party such as MFU
2.
Payment mode: Cheque / RTGS / NEFT / Net banking / other payment methods
3.
Transaction process followed by the
banks are not uniform. Depending upon the process followed by your bank,
clearing time may be less or more.
Finally let us understand the important take away, Nav Allotment date is
not arrived based on the time when money was deducted from your bank account. Nav Allotment date is arrived based on the time of payment received by the
fund management team.
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Read my previous articles
Time for Caution in investments / Time for
Caution in investments in pdf format
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