Recently, mutual fund investors faced delays in receiving units allotment despite timely payments due to a glitch in the National Automated Clearing House (NACH) system. Mint explains how you can mitigate the risks for such technical failures.
What led to the delays in MF units allotment?
NACH, the automated payments system operated by the NPCI, experienced issues in clearing funds during a planned system upgrade, delaying allotment of mutual fund units for both one-time payments and systematic investment plan (SIP) mandates. As a result, the net asset value for the units purchased was not allotted on the same day. As per Sebi rules, effective 1 February, NAV is assigned to the units only after the money reaches the fund house for all purchases. This compounded the problem and investors made huge losses as they could not take advantage of the post-budget market rally.
How are mutual fund units allotted?
Two conditions must be fulfilled to buy MF units. First, the investor must place the order before the cut-off time—3pm for equity and debt MF schemes, and 1.30pm for liquid funds. Second, the investor’s money must reach the fund house before units are allotted. An exception was earlier made for purchases of less than ₹2 lakh, as long as the order was placed before the cut-off time. However, from 1 February, Sebi has mandated the same rule for both big and small investors. For the money to reach the fund house, the intermediary should be able to collect it from you and ensure that it reaches the fund house on time.
Does it affect systematic investment plans also?
Yes, even if your SIP is scheduled for a particular day, the money has to reach the fund house before the units are allotted. This is not an issue in case of systematic transfer plans (STPs) or switches from liquid funds to equity funds. However, SIP investments are spread out over months. Therefore, delay in one SIP instalment may not make much difference to your returns.
Why does delayed allotment matter?
Unlike a market buy order, an MF purchase order may not get you the NAV of the day you apply. If markets move a great deal between your purchase order day and units allotment day, you are put at a disadvantage. The system is opaque and intermediaries process your transaction at their own speed. This is more of a issue for lump-sum purchases than SIPs. The mode of payment also makes a difference. Paying through cheque takes longer than payments through electronic systems, such as NEFT or RTGS.
What are the possible remedies to this?
Having the same bank as your payments intermediary puts you at an advantage. For example, the BSE StaAR MF platform has certain primary on its system, including HDFC, ICICI and SBI. Also, paying via UPI increases your chances of getting the allotment on the same day. UPI, however, has a ₹1 lakh limit and transactions can also fail. Another option is to buy ETFs through your stockbroker. ETFs trade through the day and you can lock in a specific price. A long-lasting remedy needs intervention from Sebi and RBI.