SEBI proposes 7 pm cut-off for NAV calculation in overnight mutual fund redemptions

Markets regulator SEBI on Monday, January 20, proposed revising the cut-off time for determining the net asset value (NAV) of overnight mutual fund scheme redemptions to 7 pm, from the current 3 pm.

The change, detailed in SEBI's consultation paper, seeks to provide stock brokers and clearing members sufficient time after market closure to un-pledge Mutual Fund Overnight Scheme (MFOS) units and initiate redemption requests.

Mutual fund redemption involves selling your mutual fund units back to the asset management company (AMC) in exchange for cash, allowing you to exit the fund and receive the value of your investment.

MFOS allows brokers and clearing members to invest client funds in risk-free overnight securities, such as government bonds, repo markets, and tri-party repo dealing and settlement (TREPS), minimising risk transformation due to its overnight tenure.

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"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," SEBI said.

These units are required to be held in demat form and pledged with clearing corporations.

SEBI noted that as overnight schemes invest in securities with one-day maturity, the extended timeline will not impact valuation or redemption capability.

“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.

Public comments on the proposed change are invited until February 10.