After changing the regulations of Multi Cap funds last week, SEBI issued another notice on 17th September 2020 i.e. last Thursday. SEBI notified AMCs and investors alike about the introduction of a new rule with regards to the NAV for mutual funds when buying.
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New Mutual Fund Buying Rules From SEBI
While earlier the rules from SEBI dictated that the NAV of the same day will be applicable when purchasing units of mutual funds before 1:00 pm, new rules dictate that the NAV from the day of realization (day when investment money reaches the AMC) will be applicable. Note that unlike before, this rule is applicable to both investments above Rs. 2 lakhs and below it.
As per the SEBI circular, “It has been decided that in respect of purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilization irrespective of the size and time of receipt of such application”.
As stated above, this rule is applicable only for Equity Mutual funds and Debt Mutual funds. This rule will be applicable starting from the 1st January 2021, until then the old mutual fund buying rules will be applicable.
New Mutual Fund Buying NAV Rules vs. Old Mutual Fund Buying NAV Rules
For Equity and Debt mutual funds, the rules for purchasing units were different earlier. They were mainly dependent on the size of the investment where Rs. 2 lakhs was set as the cut-off amount. Let’s explain how:
NAV Rules – Equity Mutual Funds
Old Rule For Investment Below Rs. 2 lakhs: If an investment below Rs. 2 lakhs is made in Equity mutual funds before 1:00 pm, the NAV of the same day is counted irrespective of whenever the investment money reaches the AMC. However, if the investment application is made after the cut-off timing of 1:00 pm, the investor will get the next day’s NAV.
Old Rule For Investment Above Rs. 2 lakhs: If an investment above Rs. 2 lakhs is made in Equity mutual funds before 1:00 pm, the NAV of the day when the money reaches the AMC is counted irrespective of the cut-off timing. Let’s say, you invest Rs. 5 lakhs on 22nd September 2020, before 1:00 pm. Now if the money reaches the AMC on 23rd September, as per the old rule you will get the NAV of 23rd only.
New NAV Rule: The new NAV rule is applicable irrespective of the size of investment. Starting 1st January, the NAV for the day on which the amount reaches the AMC, will be applicable.
NAV Rules – Debt Mutual Funds
Old Rule For Investment Below Rs. 2 lakhs: If an investment below Rs. 2 lakhs is made in Debt mutual funds before 1:00 pm, the NAV of the same day is counted irrespective of whenever the investment money reaches the AMC. However, if the investment application is made after the cut-off timing of 1:00 pm, the investor will get the next day’s NAV.
Old Rule For Investment Above Rs. 2 lakhs: If an investment above Rs. 2 lakhs is made in Debt mutual funds before 1:00 pm, the NAV of the day when the money reaches the AMC is counted irrespective of the cut-off timing. Let’s say, you invest Rs. 5 lakhs on 22nd September 2020, before 1:00 pm. Now if the money reaches the AMC on 23rd September, as per the old rule you will get the NAV of 23rd only.
New NAV Rule: The new NAV rule is applicable irrespective of the size of investment. Starting 1st January, the NAV for the day on which the amount reaches the AMC, will be applicable.
For subcategories of Debt mutual funds like Overnight mutual funds and Liquid mutual funds, let’s see how the rules vary:
NAV Rules – Overnight & Liquid Mutual Funds
There is no difference between the new rules and old rules of buying Overnight and Liquid mutual funds. The rules continue to be the same as before. Currently, the cut-off timing for Overnight and Liquid mutual funds is 12:30 p.m. And, the investors get the NAV of the day when the funds reach the AMC already. Due to this, there was no need to modify the current rules.
