The Hindu Business Line : MFs to follow uniform cut-off time for calculating NAVs

The Association of Mutual Funds in India (AMFI) would be submitting its recommendations for implementing the uniform cut-off time to the Securities and Exchange Board of India next week, Mr A.P. Kurien, AMFI Chairman, told Business Line. These recommendations are awaiting final clearance from the AMFI board, he said.

According to the current system, asset management companies (AMCs) have different cut-off time applicable to different funds and these are specified in the offer documents of the respective schemes. This allows AMCs to discriminate against investors and allow large investors to avail NAVs of the previous day, despite missing the cut-off time.

Hence, if a large investor has information about rising markets, he can invest when the NAV is low and reap the returns of the rise, at the cost of lower returns to other investors.

The AMFI and the mutual fund industry are seeking to nip this practice in the bud, before it becomes a scam like in the US recently, Mr Kurien said.

He said that the association is trying to develop a uniform cut-off time for the various funds with respect to the type of scheme so that the acceptance time and applicable NAV is similar across schemes.

A technical committee comprising of Mr Alok Vajpeyi, President, DSP Merrill Lynch MF, and Mr. Krishnamurthy Vijayan, CEO, JM Mutual fund, prepared a draft recommendation. This was then circulated to the entire industry and post discussions with the heads of AMCs, the final draft with the industry views incorporated has been prepared and presented to the board. The SEBI, on receiving the AMFI recommendations, is expected to publish a guideline for all AMCs. Auditors — internal and external, and SEBI audits will then ensure that the system is being followed by AMCs and irregularities are eliminated.

Mr S.V. Prasad, CEO Birla Sun Life AMC, said that the process of time stamping will evolve and the publication of the SEBI guidelines will help in minimising the problem.