NPCI payment processing delay: Should mutual fund SIP investors be worried at all?

If you invest for the long term, a handful of days here or there should not make a difference

February 11, 2021 / 10:41 AM IST

Over the last 10 days, investors who had opted for systematic investment plans via digital modes have been facing delays in getting mutual fund units allotted to them. A technical snag at the National Payments Corporation of India (NPCI) led to the delay processing payments. This led to allotment of units three to four days later than anticipated, investors and distributors Moneycontrol spoke to said.

The recent tweak allotment norms by the Securities and Exchange Board of India (SEBI) also added to the confusion. Since February 1, 2021 fund houses can allot units of mutual funds to investors only on realization of the amounts and the application reaching the fund house before the cut off time. It is 3PM in the case of equity mutual funds. To get the units allotted for a particular day’s net asset value (NAV), both the conditions need to be satisfied.

Earlier, you could get the units even if the money reached the mutual fund a couple of days later.

But the problem appears to be headed towards a resolution now. “The NACH system’s planned upgrade and implementation of SEBI’s rule on allotment of mutual fund units on realization of funds coincided on the same day.  There was an initial issue of delayed payments during our upgrade process resulting in delayed allotments, we regret for the inconvenience and the issue stands resolved. We are working with the ecosystem to see if there is any unresolved pendency,” says Dilip Asbe, Managing Director and CEO of National Payments Corporation of India.

How did the NPCI issue impact MF investments?

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The NPCI’s National Automated Clearing House (NACH) is responsible for smooth money transfers. These account for more than 80 percent of the transactions, says an industry observer. Transactions with direct debit, in cases where the fund house and investor have accounts with the same bank, are unaffected. This is because this is a private arrangement between a fund house and a bank. These account for just 1-2 percent of the overall transactions. Lump-sum payments, funded using methods such as NEFT and RTGS, are also unaffected because these are under RBI’s control and have a completely different architecture.

The NPCI handles the bulk of retail payments in the country. All NACH-related debits in your bank account – SIPs, EMIs, regular insurance premiums – that are recurring in nature, are handled by NPCI.

“As units are to be allotted based on realization of funds, such delays are bound to happen if any one of the components in the chain fails to deliver on time,” says a senior mutual fund official on the condition of anonymity. He says that regulators need to assess the supporting digital infrastructure before tightening regulations for any financial services provider.

The issue however is getting resolved and the system should bounce back to normalcy soon.

What should investors do?

In a rising market, late allotment of units could mean that you miss a bit on the upside. This could eat into your returns. But if you invest for the long term, a handful of days here or there should not make a difference. If you are keen to time the markets, purchasing an index based exchange traded fund (ETF) that quotes at a value close to its NAV may be a good idea. You can take advantage of some intra-day correction as well, which is not possible in case of an open-ended fund.

“Many investment platforms have set cut-offs an hour or two ahead of the SEBI-prescribed timelines, to ensure seamless transaction experience for the investor,” says Mohit Gang, founder and CEO of MoneyFront.in.

Money transfers take time. Funds don’t get transferred to the AMC’s account the moment they are debited from your bank account.

“Since SIP is a chain of regular investments the investors should focus more on the regular payments than the timing of the transaction,” says Ravi Kumar TV, founder of Gaining Ground Investment Services.

Ravi suggests that investors registered for SIPs involving small amounts be exempted from this rule of allotting units based on realization of funds.
Nikhil Walavalkar
first published: Feb 11, 2021 10:41 am

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