In a recent regulatory update, the Securities and Exchange Board of India (SEBI) has announced a change in the cut-off timings for determining the Net Asset Value (NAV) applicable for redemptions in overnight and liquid mutual fund schemes. This change will come into effect starting June 1, 2025, marking a significant shift aimed at improving the safety of client funds and enhancing the operational framework for brokers and clearing members.

Why the Change?

The move is a part of SEBI’s ongoing efforts to strengthen the protection and safety of client funds. SEBI has introduced new regulations to ensure that funds with stock brokers and clearing members are transferred daily to clearing corporations, a move commonly referred to as "upstreaming." This regulation, which was introduced in December 2023, mandates that all client funds must be transferred at the close of each day, and the overnight mutual fund schemes will play a crucial role in facilitating this process.

The Revised Timings for Redemption Requests

Under the old system, mutual fund houses applied a uniform cut-off time across both online and offline redemption requests. However, with the new changes, SEBI has introduced separate cut-off timings for different modes of redemption for overnight funds.

1. Offline or Physical Mode:

   • Redemption requests placed before 3:00 PM will be allotted the closing NAV of the preceding business day.

   • Requests submitted after 3:00 PM will get the NAV of the next business day.

2. Online Mode (Only for Overnight Funds):

   • Redemption requests can be placed until 7:00 PM to receive the same-day NAV.

   • Requests placed after 7:00 PM will receive the NAV of the next business day.

This system offers greater flexibility to online investors, as they can redeem their investments until 7 PM on the same day, ensuring that they benefit from the current day’s NAV. In contrast, offline investors need to act faster and submit their redemption requests before 3 PM to receive the earlier NAV.

Impact of the Changes on Investors

These revisions emphasize the importance of timing when redeeming overnight and liquid mutual funds. Here’s what investors need to keep in mind:

• Online investors benefit from a longer window with the 7:00 PM cut-off, making it easier to plan redemptions.

• Offline investors must adhere to the 3:00 PM deadline to avoid receiving a delayed NAV, which could affect returns.

• Any requests placed after the respective cut-off time will impact which day’s NAV will be applied, thus affecting the value of the redemption.

How the Upstreaming Framework is Linked

The change in cut-off timings also ties into the new upstreaming framework, where SEBI has mandated that client funds with brokers must be transferred to clearing corporations by the end of each day. This ensures that client funds are available in real-time for settlement, particularly with overnight mutual funds, which will be crucial for upstreaming in the future.

What This Means for Mutual Fund Managers

Mutual fund houses and managers will need to update their redemption processes to comply with these new rules. Investors should be informed about the new cut-off times and the impact these timings have on the NAV that will be applicable to their redemption requests. SEBI’s updates ensure more transparent and efficient operations in mutual fund redemptions, with better protection of client funds.

Conclusion

The new cut-off timing changes implemented by SEBI mark a significant step in improving the security of client funds and enhancing operational efficiency within the mutual fund industry. With these updates, investors now have a clear understanding of the redemption timelines and can make informed decisions when redeeming their investments. Investors are advised to take note of the deadlines for offline and online redemptions and adjust their investment strategies accordingly.

For more information, investors can refer to SEBI’s official announcements and consult with their mutual fund advisors for any specific queries regarding the new cut-off timings and how it may impact their investments.

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