SEBI reduces subscription, redemption cut-off time for liquid MFs

PALAK SHAH Mumbai | Updated on April 06, 2020

The cut-off time for mutual fund investors to submit redemption or subscription request in liquid funds has been reduced to 1 pm from 3 pm earlier. SEBI on Monday sent out emails to fund houses and asked them to issue a public notice. A copy of the email was seen by Business Line. SEBI has said that the new rule will be effective between April 7 to 17. But sources said, the regulator may extend it till the time full lock-down continues.

Most investors wait till 3 pm when the stock markets are near to its closure for deploying their money in liquid funds as they can gauge the sentiments and mood of the financial markets. Also, since markets in Europe open at 1.30 pm a cut-off time gave investors some room to see where global markets were headed. Opening of Europe markets have often had impact on trading in Indian markets.

But Reserve Bank of India cut down trading hours for debt and currency markets from 5 pm earlier to 2 pm due to COVID-19 lock-down. After this MFs wrote to SEBI to reduce the cut-off time so that they know investor subscription or redemption position by 2 pm .

MFs park their money of liquid schemes in overnight money market instruments. Many high net worth individuals, corporates, and banks park their money in debt schemes of liquid mutual funds and keep rotating it everyday. Liquid MFs yield more returns than the traditional savings account. The subscription or redemption request submitted by investors before the cut-off time is honoured as per same days net asset value but the pay-out is made the next day by 10 am in the morning. The same money is again deployed in the money market instruments and the cycle goes on. For instance, even huge quantities of money parked in banks, are invested by banks in liquid mutual funds. This is mainly because liquidity is ensured at a day’s notice, and there is no entry and exit load.

Published on April 06, 2020

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