Sebi Proposes Extended Cut-off Timings for Mutual Fund Redemption

Sebi has proposed extending the cut-off timings for net asset value determination related to repurchase or redemptions in overnight mutual fund schemes from 3 pm to 7 pm. The change aims to assist stock brokers and clearing members in redeeming mutual fund units after market hours, without affecting fund valuations.

The Securities and Exchange Board of India (Sebi) on Monday proposed a shift in the cut-off time to determine net asset value (NAV) for repurchases or redemptions of units in overnight mutual fund schemes, moving it from 3 pm to 7 pm. This adjustment aims to accommodate stock brokers and clearing members by allowing more time to un-pledge units and place redemption requests after market closure, according to Sebi's consultation paper.

This proposed timing change, if implemented, is designed to provide flexibility for investment in Mutual Fund Overnight Schemes (MFOS), ensuring minimal risk for client funds due to their investment in risk-free government securities with overnight tenure. Stock brokers and clearing members are to channel client funds strictly into these secure government bond overnight repo markets and overnight TREPS.

Furthermore, all units of MFOS must be held in demat form, should remain pledged with a clearing corporation, and the industry has until February 10 to provide comments on the proposal. The proposal asserts that redemption decisions in overnight schemes only involve deciding not to reinvest maturing funds on the next day, thus not affecting fund valuation or redemption capability despite the proposed timing extension.

(With inputs from agencies.)