Why it is important to read this, before an investment above 2L
Even those investors who are regularly investing in mutual funds since a long time, may not be aware of some important guidelines that may have an adverse impact on their investments. Unless you are an avid investor who never miss to have a through look on finer prints given in Key Information Memorandum (KIM) every time before choosing a new scheme, you are very likely to face some unexpected shocks related to applicable NAV as some important aspect are not prominently shown on websites or promotional literature.
I am sharing an important point that you must keep in mind before doing a purchase/ switch-in transaction for an amount above two lakhs, if ignored may result in considerable dent in return on investment. However, It can easily be taken care of, if done with a proper planning.
Have you ever noticed a delay in unit allocations for a transaction within cut-off time ??
It is more common a thing, if you make switch-out/in transaction between two schemes of a mutual fund well within cut-off time, applicable for both schemes.
However, cut-off time is not the only criterion to decide applicable NAV for a transaction. In a worst case scenario, if markets are too volatile, you may end-up in losses if there is a trend reversal on the next business day as applicable NAV date. Less units at higher NAV would end-up in a loss where as you were expecting a cost averaging or profit on a sharp decline of previous day !!
Also Read : Auto-updated Equity Stocks Portfolio in Google Sheets
How did it happen ??
Fund Switch Transaction above 2 Lakhs :
Equity market had a sharp decline for the day, I wanted to capture the sharp decline in benchmark index to average cost in an equity scheme. Therefore, I requested a fund switch from a debt fund scheme to an equity scheme with a lumpsum amount above 2 lakhs. It was a successful transaction well withing cut-off timing. Despite that same day NAV was not applied to calculate unit allocations!! . . .but why ?? I had completed it withing cutoff time yet . .
It would have been better if market moved in same direction, but unfortunately, market took U-turn and bounced back and eventually I was in loss with less number of units.
How it was resolved ??
I validated the written response provided by the fund house and verified it with their Key Information Memorandum and found it perfectly in compliance with stipulated statutory guidelines.
So, I had no other option than to regret that had it been known to me earlier, I would have planned it a better way.
Why same day NAV was not applicable for it . . ??
Cut-off timing is just one important aspect, if subscription amount is equal to or exceeds 2 lakh rupees. Availability of funds for utilization determines the applicable NAV in that case.
In a switch transaction, fund realisation is based on applicable NAV for redemption in the source scheme and same will only be available on next businesses day for utilisation in Target scheme. Therefore, same day Net Assets Value is not applicable to a switch transaction above 2 lakh even before cut-off timing.
Key Information Memorandum Demystifies everything about it !!!
It clearly says :
For subscription of Rs. 2 lakh & above:
In respect of purchase of units of the scheme, the closing NAV of the day on which the funds are available for utilization shall be applicable, provided the funds are realised up to 3.00 pm on a business day, subject to the transaction being time stamped appropriately.
SEBI Frequently Asked Questions has more details on it!!
How is the applicable NAV determined?
Liquid schemes – Subscription
- Where the application is received up to 2.00 p.m. on a day and funds are available for utilization before 2:00 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day of receipt of application.
- Where the application is received after 2.00 p.m. on a day and funds are available for utilization on the same day without availing any credit facility, the closing NAV of the day immediately preceding the next business day;
- Irrespective of the time of receipt of application (before or after 2:00 p.m. on a day), where the funds are not available for utilization before 2:00 p.m. without availing any credit facility, the closing NAV of the day immediately preceding the day on which the funds are available for utilization.
Liquid schemes – Redemption
- Where the application is received up to 3.00 pm – the closing NAV of day immediately preceding the next business day;
- Where the application is received after 3.00 pm – the closing NAV of the next business day.
For amount less than INR 2 lakh
- Where the application is received up to 3:00 p.m., closing NAV of the day on which the application is received.
- Where the application is received after 3:00 p.m., closing NAV of the next business day.
- Where the application is received up to 3:00 p.m. and funds are available for utilization before 3:00 p.m., closing NAV of the day on which the application is received.
- Where the application is received after 3:00 p.m. and funds are available for utilization, closing NAV of the next business day.
- Irrespective of the time of receipt of application (before or after 3:00 p.m.), where the funds are not available for utilization, closing NAV of the day on which the funds are available for utilization.
Other than Liquid Schemes – Redemption
- Where the application is received up to 3.00 pm – closing NAV of the day on which the application is received;
- Where the application is received after 3.00 pm – closing NAV of the next business day.
Want to see more SEBI FAQs, Lets have a look Click Here.
No comments:
Post a Comment