Sebi, the market regulator, announced on Tuesday a change in the cut-off timings for determining the net asset value (NAV) of repurchase or redemption of units in mutual fund overnight schemes.
The changes will allow stock brokers (SBs) and clearing members (CMs) to un-pledge units of Mutual Fund Overnight Schemes (MFOS) and place redemption requests with mutual funds after market hours.
For applications received by 3 p.m., the closing NAV of the day immediately preceding the next business day will apply. According to the Sebi circular, applications received after 3 p.m. will be subject to the next business day's closing NAV.
However, if the application is received online, the cut-off time of 7 p.m. will apply to overnight fund schemes, it added.
The new timings will take effect on June 1.
Investment in Mutual Fund Overnight Schemes (MFOS) provides a new avenue for stock brokers or clearing members to deploy client funds while ensuring minimal risk transformation due to overnight tenure and exposure to only risk-free government securities.
SBs/CMs ensure that client funds are only invested in MFOS that use risk-free government bond overnight repo markets and overnight Tri-party Repo Dealing and Settlement (TREPS).
Furthermore, such MFOS units must be in demat form and pledged to a clearing corporation at all times.
In its January consultation paper, Sebi stated that overnight schemes receive money invested in securities with a one-day maturity on the next working day.
"To meet redemption requests, overnight schemes are not required to conduct any sales transactions before market hours. Instead, based on redemption requests, the overnight schemes may decide not to reinvest maturity proceeds received on the T+1 settlement date.
"Because the money must be invested every day, the amount of redemption requests received on T-day is not reinvested on T+1 day, but rather used for payouts. As a result, the redemption timeline, whether 3 p.m. or 7 p.m., will have no impact on the funds' valuation or ability to redeem investments," according to the regulator.
