The Securities and Exchange Board of India's move to revise the cut-off time for mutual fund schemes for both liquid and overnight funds and other schemes will ease operational issues faced by the asset management companies
This will also reduce the backlog of Registrar and Transfer Agents (RTA) for collating the applications at a time when they are struggling with limited staff members and in turn help AMCs to calculate net asset values on time.
Given the lockdown and minimum employee capacity, the Reserve Bank of India had reduced the working hours of banks from 10 AM-2 PM.
The trading hours for forex market, gilts market and other money market instruments has also been shortened to 10 AM-2 PM from 9 AM-5 PM
In line with this, SEBI too had to take a call to revise the mutual fund subscription and redemption timings as liquid and overnight funds which are debt funds need cheque and banking clearances.
For liquid funds and overnight funds, the revised cut-off timing for subscription has been changed to 12.30 PM for all transactions.
Earlier, the cutoff time for liquid and overnight funds was 1:30 PM and for other funds, it was at 3 PM. Other funds include bonds, equity, and hybrid funds.
Equity investors can now redeem their investments by 1 PM, instead of 3 PM, earlier.
The revised cut-off timings will be applicable from April 7 to 17, 2020, as per communication from the Association of Mutual Funds in India (AMFI).
"Taking into account the impact of the revised trading hours for various markets as per the RBI release, SEBI has decided to reduce the cut-off timing for both subscription and redemption in various mutual fund schemes for a temporary period," AMFI said.
RBI has also curtailed the market hours for various segments of bond markets to four hours – 10 AM to 2 PM.
Earlier, equity mutual fund investors had to invest until 3 PM for getting same day’s NAV, but now with this temporary revision in, the cut off is 1 PM.
Also, fund distributors said that with the nationwide lockdown till April 14, 2020, the mutual fund offices and Registrar & Transfer Agents (RTA) are closed and investors are advised to transact online using mobile applications and websites. So, mutual fund transactions on digital platforms are rising and need to be processed within the turnaround time.
Other operational issues such as calculation of net asset values and announcing them are adding to the workload of the mutual funds and RTA's particularly with reduced capacity due to lockdown. Advancing the cutoff time is seen as a fallout of the same.
With the coronavirus outbreak triggering panic, Indian state and central governments had directed private companies to work from home.
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Under these circumstances AMCs, RTAs are compelled to function with minimum staff operating from office.
For AMC to function well, three entities are involved—AMC, custodian, and RTAs.
AMC takes a call on which fund to sell/buy/hold and engages in the buying and selling of securities on behalf of their investors. Custodian is responsible for holding and safeguarding the mutual fund unit and Registrar and Transfer Agents (RTA) are the record keepers.
MF Registrars and service providers such as Custodians and Fund Accountants are also impacted as most of their employees are also directed to work from home, said Amit Joshi, a Mumbai-based mutual fund distributor.
“Cut off timings are forwarded for liquid and overnight funds which are debt funds. Debt and bond markets need cheque and banking clearances. Banking timings have been shortened presently from 10AM-2PM. In line with this, bond market timings are also restricted. So for debt MF transactions to happen inside bank and bond market timings this timing advance has been done by SEBI," said a sales head of a mutual fund house.
Further, any Incoming MF investment either equity or debt needs banking clearances while outgoing MF Redemption is RTA clearance where also timing is restricted, distributors said.