The Securities and Exchange Board of India (Sebi) has introduced a revised cut-off timing for mutual fund overnight schemes (MFOS) aimed at improving liquidity and efficiency in repurchase and redemption requests. Starting June 1, 2025, applications for redemption received up to 3 pm will be based on the previous day's Net Asset Value (NAV), while those received after 3 pm will be based on the next business day's NAV. The change ensures that stock brokers and clearing members have sufficient time to un-pledge units and process redemption requests post-market hours. Online applications will follow a later cut-off time of 7 pm.
Introduction of Revised Cut-Off Timings
In an effort to streamline the redemption process for mutual fund overnight schemes (MFOS), Sebi announced a revision in the cut-off timings for determining the Net Asset Value (NAV). Effective June 1, 2025, the updated cut-off times will give stock brokers (SBs) and clearing members (CMs) more flexibility in processing redemption requests. The decision is designed to ensure that MFOS investors can redeem their units efficiently, even after market hours, without affecting the valuation process.
Key Changes to Redemption Timings
Under the new guidelines, applications for redemption received by 3 pm will be processed based on the closing NAV of the previous business day. For redemption applications submitted after 3 pm, the NAV for the next business day will be used. This adjustment allows stock brokers and clearing members to un-pledge units of mutual fund overnight schemes, providing them with more time to place the redemption requests.
Additionally, the cut-off timing for online applications will be extended to 7 pm, offering investors further flexibility. This extended deadline reflects Sebi's aim to ensure that the redemption process remains smooth and predictable, even as the market operates beyond regular trading hours.
Importance of MFOS and the Role of Stock Brokers
Mutual Fund Overnight Schemes (MFOS) have emerged as a low-risk investment avenue, primarily aimed at deploying client funds into government securities with very short tenures, typically overnight. The schemes invest in risk-free assets such as overnight repurchase agreements (repos) and Tri-party Repo Dealing and Settlement (TREPS), ensuring minimal risk for investors.
For stock brokers and clearing members, MFOS present an opportunity to manage client funds with a secure investment option that provides a guaranteed return through overnight investments in government securities. By requiring that these funds be pledged with a clearing corporation at all times, Sebi ensures the integrity and safety of the investment process.
Clarifying the Impact of New Timings
Sebi has emphasized that the revised redemption cut-off timings will not impact the valuation or liquidity of the schemes. As explained in Sebi’s earlier consultation paper, the overnight schemes do not require a sale transaction before market hours to meet redemption requests. When redemption requests are received, the proceeds from maturing securities are used for payouts instead of reinvestment. Therefore, whether applications are received before 3 pm or by 7 pm, the scheme's valuation and redemption capability remain unaffected.
By adjusting the cut-off times, Sebi aims to enhance the operational efficiency of MFOS, providing stock brokers and clearing members with sufficient time to meet their clients’ redemption requests without compromising the overall functioning of the mutual fund’s liquidity.
A Step Towards Greater Market Efficiency
This change in cut-off timings for MFOS is part of Sebi's broader effort to ensure that the Indian mutual fund market remains flexible and responsive to the evolving needs of investors. The move highlights Sebi’s ongoing commitment to improving the efficiency and accessibility of mutual fund investments, particularly for institutional participants like stock brokers and clearing members.
With the flexibility of later cut-off times, Sebi is fostering greater investor confidence in the liquidity of mutual fund overnight schemes, making it easier for participants to manage redemptions effectively while ensuring the stability and transparency of the market.
Conclusion
Sebi’s updated cut-off timings for mutual fund overnight schemes aim to create a more efficient and user-friendly environment for both investors and market participants. By extending the redemption request deadlines, particularly for online applications, and allowing additional time for un-pledging units, the regulator is enhancing the overall liquidity of the schemes. As these changes come into effect in June 2025, the Indian mutual fund sector is poised to benefit from improved operational efficiency, greater flexibility, and sustained investor confidence.
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