No sales and redemptions at mutual funds to take place today

A non-business day means that no sales or redemptions are allowed at fund houses.

Despite equity markets being open today, Saturday January 20, mutual fund (MF) houses have maintained it as a non-business day today. In simple words, a non-business day means that no sales or redemptions are allowed at fund houses. To be sure, net asset values (NAVs) of funds will be declared today, for their schemes’ corpuses and assets to be valued. But this would be merely academic; no units would be priced (in other words, allotted or redeemed) at today’s NAV, as Saturday January 20 is a non-business day.

Exchange-Traded Funds (ETF) on the other hand, will be open for business, as stock markets are open. NAVs of ETFs will also be declared today as ETFs by law have to align their portfolios in line with their benchmark indices by the end of the day. NAVs being declared for ETFs and trading of ETF units at market prices mean that investors will be able to buy and sell ETF units today, January 20, since they are bought directly on the stock exchanges.

This last-minute confusion was caused by the Maharashtra government’s late evening announcement on Friday, January 19 that Monday, January 22 will be declared a public holiday on account of the opening of the Ram Temple in Ayodhya. Elsewhere- and this has nothing to do with Monday’s holiday - the stock exchanges (the Bombay Stock Exchange and the National Stock Exchange) had made a plan to keep the equity markets open today for a few hours to practice the drill to test their disaster recovery management. In the late evening decision taken on Friday- after the state government’s decision- the exchanges decided to keep the equity markets for the full day (9:15 am to 3:30 pm).

However, fund houses have decided to keep today, Saturday, as a non-business day. In simple words, if investors transfer money to fund houses with the wish to invest, units will be allotted as per the NAV of the next business day (Tuesday)’s NAV (for all equity and debt funds).

Given that Monday has been declared a holiday, here’s how units would now be allotted:

In case of liquid and overnight funds, subscriptions made before the cut-off time on Friday (1:30 pm; January 19) would be allotted at the previous day’s NAV (January 18). But if you had invested in a liquid or overnight fund after the cut-off time on Friday January 19 (1:30 pm), you will get units- as per SEBI rules- at the NAV one day prior to the next business day. Under ordinary circumstances, the next business day would have been Monday, which means you would get units allotted on Sunday’s NAV. Only liquid and overnight funds declare NAVs on Sunday; also called holiday NAV in MF parlance. Now, since Monday January 22 has been declared a holiday and Tuesday January 23 is a business day, liquid and overnight funds will declare their NAVs on Monday. Investments made after the cut off time (1:30 pm) on Friday January 19 will now be allotted units at Monday’s NAV.

If you had invested in an equity or any other type of debt fund (other than liquid and overnight funds) before the cut-off time on Friday (January 19), then you would have got units as per Friday’s end of day NAV. But investments made after the cut-off time on Friday (January 19), would be allotted units as per Tuesday’s NAV.

Similarly, redemption requests made before the cut-off time (Friday, January 19) would be allotted units at Monday’s NAV since investors of liquid and overnight funds get the benefit of the latest NAV declared. Redemption requests made after the cut-off time on Friday will now be allotted money based on Tuesday’s NAV. For equity and all other types of debt funds, redemption requests made before the cut-off time on Friday will be allotted at Friday’s NAV. Redemption requests made after the cut-off time on Friday will be allotted Tuesday’s NAV.

As per rules laid out by the capital market regulator, Securities and Exchange Board of India (SEBI), and elaborated in every scheme’s offer document, if a fund house were to convert a non-business day to a business day or vice-versa, there is a long process that includes taking an approval of the board of trustees. But more than that, there are operational challenges, such as re-opening branches located all over India, co-ordination and action alongside registrar and transfer agents and so on. After this, the fund house must publish the addendum on its website. All this wouldn’t have been possible at such short notice, given that the decision to declare Monday (January 22) as a holiday and equity markets being kept open today (January 20) was taken late Friday evening. To be sure, January 22 has just been declared a non-business day.

To be sure, fund managers would be able to buy or sell stocks if they have surplus cash they wish to deploy. But some senior MF industry officials who spoke to Moneycontrol said that due to foreign institutional investors being on a weekend holiday today, liquidity in the markets is expected to be low. But some fund houses confirmed that their fund managers are in offices today, in case any buy or sell opportunity comes up.