The Securities and Exchange Board of India (SEBI) on January 20, 2025, issued Consultation Paper on draft circular for change in cut-off timings to determine applicable NAV with respect to repurchase/redemption of units in overnight schemes of Mutual Funds.
The following have been stated:
• Investment in MFOS (Money Market Funds with Overnight Securities) offers a low-risk option for Stock Brokers (SBs) and Clearing Members (CMs) to deploy client funds. These funds are invested exclusively in risk-free government securities, with overnight tenure, ensuring minimal risk and liquidity (as funds are withdrawable on demand). SBs/CMs are required to ensure these investments are in MFOS that focus on government bond overnight repo markets and TREPS. Additionally, the MFOS units must be in dematerialized form and pledged with a Clearing Corporation at all times.
• To implement the investment framework for MFOS, a Working Group, including industry participants, AMFI, and the Mutual Funds Advisory Committee (MFAC), has recommended extending the cut-off time for repurchase (redemption) of units in overnight fund schemes. The proposed change moves the cut-off from 3:00 PM to 7:00 PM. This extension allows SBs/CMs additional time after market hours to un-pledge MFOS units and submit redemption requests to Mutual Funds.
• Overnight schemes invest in securities with a 1-day maturity, and redemption requests are typically met using the maturity proceeds received on the next working day (T+1). To handle redemptions, these schemes don’t need to sell securities before market hours. Instead, they can choose not to reinvest the maturity proceeds for the redemption amount on T+1, using it for payouts instead. This approach ensures that the redemption timeline (whether 3 PM or 7 PM) does not affect the fund’s valuation or its ability to process redemptions efficiently.
Draft Circular on “Change in cut-off timings to determine applicable NAV with respect to repurchase of units in overnight schemes of Mutual Fund” is placed at Annexure A. Public comments are invited on the Draft Circular.
The comments/ suggestions should be submitted latest by February 10, 2025, through the following link: https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComm
