Why All Investors should watch their Lumpsum and SIP Investments NAV more closely now

Mutual Fund NAV SIP2
Since February 1st 2021 onwards Mutual Funds industry has undergone a major change in Net Asset Value (NAV) applicability where Units will be allotted only on when Fund’s realization happens at AMC end irrespective of amount invested. Under Old method all investments which are less than 2 lacs (except Liquid & Overnight funds) used to get same day NAV and for investment Greater than or equal to 2 lacs used to get when the fund realization happened.

What it mean by Realization basis?

Generally, investor who give cheque for their investment along with application. Then the RTA or distributor will deposit the same cheque in respective fund bank account as preferred by investor. The Bank where your cheque is deposited will encash to same funds will be transferred to Asset Management Company (AMC) bank account.

This entire process will take some time a day or two. With new NAV rules, you will get units under your folio only upon reaching your funds to AMC account not when it got debited in your bank account. For Example. You have given a cheque on March 5 Friday and is debited on same day in your account. However, the funds received into AMC account on March 8 Monday. In this case you will get allotment of units only on 8th March with applicable NAV.

Similarly, when you go with Online transaction some of the banks will settle the fund on T+1 and T+2 basis into AMC bank account though your bank account got debited on same day .

How does this effect Lumpsum and SIP transactions now ?

Earlier for the investment which is less than 2 Lac amounts used to get NAV for same day based on application reported and irrespective of when the funds actually realized. For example. You made a lumpsum investment of 100000 on March 5 before cut-off ( i.e 3 PM) then you used to get March 5th NAV even though your account got debited after March 5th.

In Systematic Investment Plan (SIP) , Investors sign one time Mandate to debit their account from respective bank on certain SIP date and Bank used to debit your account accordingly. And sometimes you see your account got debited early or late for the same. Even in this scenario you used to get the units basis on NAV prevailing on your chosen SIP date.

After AMFI and SEBI circular issued to follow uniform rules for applicability of NAV irrespective of amount, it has changed the scenario.

If your account got debited late or same day and funds has to reach AMC account on your SIP date exactly otherwise you will not get the prevailing NAV on that day. Though there will be negligible impact on SIP but lump-sum investment may affect very highly. Subsequently it impacts for long term investment as you may get less or more units depending on market NAV.

Where does this issue comes from?

All your payments and settlements majorly done Banks, Payment aggregators like Billdesk, Razorpay, NACH , ever since digital transactions are increased drastically still industry is not yet par to handle all these settlements instantly. Many banks are still settling T+1 basis even for Online transactions. Majority of third party distributors like PAYTMMONEY, phonepe, ETMoney, NJ , Groww, Scripbox all depend on payment aggregators such as billdesk or Razorpay.

Turnaround time for a transaction depends on investor bank and the service agreement between Payment aggregator and bank too. Any such delays will impact unit allocation and NAV applicability since AMC consider the time of fund realization into their account not when it actually money deducted from Investor bank account.

What a normal investor should do?

Every investor who are having some portfolio in any of the Mutual fund has to cross verify on what NAV you got units. Whether you are doing online transaction or offline through Cheque, you must ensure that you get allotted fairly with applicable NAV. Ideally it should be on same day when your account got debited as you assume that banks will settle the fund on same day subject to before cut off 3 PM for Non liquid fund and for Liquid & Overnight 1.30 PM.

Any variation or dispute you can take up with respective AMC customer care if not solved then you can approach SEBI online mode.

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