SEBI’s new NAV Rules to be applicable from February 1

Regulatory Update: Change in NAV applicability rules from 1^st Feb 2021

The Mutual Funds industry regulator SEBI recently brought in new rules for NAV (Net Asset Value) applicability for mutual fund schemes. Below are some highlights of SEBI’s new NAV Rules

“It has been decided that in respect of the purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilization irrespective of the size and time of receipt of such application. The existing provision on NAV applicability for liquid and overnight funds and cut-off timings for all schemes shall remain unchanged,” SEBI said in a circular describing their new NAV Rules.

What was it earlier and what has changed now?

• Till January 31, 2021, for most Mutual Fund scheme types investors received the NAV of the day the purchase was placed in if the application was received before 3pm and if the application amount was below Rs. 2 lakhs.
• Starting February 1, 2021, investors will get the NAV of the day on which the money reaches the collection account of the fund house (commonly known as realization-based NAV) and not of the debit date from the investor’s bank account.
• Earlier, realization-based NAV was applicable only to Liquid & Overnight funds and for transactions of Rs. 2 lakh and above in case of other schemes. However, it has now been made applicable to ‘All’ schemes irrespective of the amount of Investment.

What does this mean for an investor?

Investors need to keep in mind that the NAV they get while investing may not be of the day they make the purchase (or the day the money is debited from their account), but of the day the money is received by the fund house’s collection account.

How can an investor still get the NAV of the same day?

For Lump sum purchases with valid application, the following payment modes can help you get the same day NAV (as long as the money is credited before 3 pm):

• RTGS, NEFT
• UPI Payments
• Online through a selected list of banks, which allow for instant payment credit: HDFC, ICICI, SBI, Axis, IDBI, Kotak, Yes, IDFC FIRST, IndusInd Bank (please confirm with your bank)

How will this new NAV rules affect your SIP’s ?

As per the new circular no matter what the payment mode is, you will receive the NAV of the day when money is received in the collection account of the scheme, not when debited from your bank account. This is generally between 1 to 3 days post the debit to your account, depending on the automated NACH mandates and banking settlement systems through which SIP Instalment debits are processed.

How will this new NAV rule affect your investment in NFO’s?

For NFO (New Fund Offering) subscriptions (during the initial NFO period), allotment date will be considered for the applicable NAV irrespective of credit date or application submission date.

How will this rule affect your investment returns?

In the long run this new rule may not have any material change in your Mutual Fund returns as time in the market is more important than timing the market.

Links to SEBI Circulars

https://www.sebi.gov.in/legal/circulars/sep-2020/circular-on-mutual-funds_47574.html

https://www.sebi.gov.in/legal/circulars/dec-2020/circular-on-mutual-funds_48630.html

Disclaimer

This report is for information purpose only and does not constitute any advice to invest or redeem. Mutual Fund investments are subject to market risk. Please consult your financial advisor for more details.