Applicability of NAV upon realization of funds across all schemes (w.e.f. February 1, 2021)

FAQs ON APPLICABILITY OF NET ASSET VALUE (NAV) ACROSS VARIOUS SCHEMES UPON REALIZATION OF FUNDS

(References - SEBI circular nos. SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 17, 2020 and SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020)
 

1. What are the new guidelines specified in SEBI circulars dated September 17, 2020 and December 31, 2020 on uniformity of NAV across various schemes?
SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 17, 2020 specifies that in respect of purchase / switch-in of units, irrespective of the amount, the closing NAV (Net Asset Value) of the Business Day on which the funds are available for utilization (i.e. realization based NAV) shall be applicable. Funds for the entire amount of purchase / switch-in as per the application have to be credited to the bank account of the respective schemes before the cut-off time for the scheme. This revised rule shall be applicable to all scheme categories. This rule was already applicable to Liquid Fund and Overnight Fund.

Further SEBI circular no.  SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020 specifies that the said guideline is effective for purchase/ switch-in applications received from February 1, 2021 onwards (which include subscription application received after cut-off timing on January 29, 2021). 

For e.g. If purchase application for HDFC Balanced Advantage Fund - Regular Plan - Growth is time-stamped within cut-off on February 1, 2021 for Rs. 10,000 but the funds are credited to the scheme account after cut-off timing on that day, then the applicable NAV shall be of February 2, 2021.

2. What were the guidelines followed prior to SEBI circulars dated September 17, 2020 and December 31, 2020 on applicability of NAV across various schemes?
Prior to the SEBI circulars dated September 17, 2020 and December 31, 2020, realization based NAV was applicable for following category of transactions:
1. Any amount in case of Liquid and Overnight funds
2. Rs. 2 lakh and above in case of other schemes
From February 1, 2021, realization based NAV is applicable for ‘All’ schemes including Liquid and Overnight funds and irrespective of the investment amount.

3. What is the date of applicability of for uniformity of NAV across various schemes?
The revised rule is applicable for purchase/ switch-in applications received from February 1, 2021 onwards. It also includes those purchase/ switch-in applications received after cut-off timing on January 29, 2021.

4. Are the new provisions applicable for subscriptions through systematic mode i.e. SIP (Systematic Investment Plan) / STP (all kinds of Systematic Transfer Plan / DTP Dividend Transfer Plan)?
YES; realization based NAV is applicable for subscriptions vide systematic mode i.e. for SIP / STP installments/ DTP, irrespective of amount and registration dates.

5. What will happen to my SIP / STP / DTP registered prior to February 1, 2021?
The new changes of realization based NAV is also applicable for SIP/ STP / DTPs registered prior to February 1, 2021 too. Thus, installment of any amount will be processed as per the guidelines provided in SEBI circulars dated September 17, 2020 and December 31, 2020.

6. Which all schemes are covered for application of realization based NAV?
The above guidelines are applicable for all schemes.

7. Please confirm in detail the types of transactions that are impacted due to applicability of realization based NAV across all schemes?
The changes will impact the following types of transactions from February 1, 2021 onwards, irrespective of amount and scheme category:
1. Purchase
2. Switch
3. SIP registration (all types), irrespective of registration date
4. STP / DTP registration (all types) irrespective of registration date

* Settlement Date is the date when redemptions are processed from the Switch out Scheme.

8. What will be the impact on a switch transaction submitted from February 1, 2021 onwards?
In case of a switch transaction, the NAV that will be applied to the switch-in scheme will be based on settlement date* of switch-out scheme, irrespective of the amount of switch application. For e.g. If a switch application is submitted for any amount from HDFC Equity Fund – Direct Plan – Growth option to HDFC Top 100 Fund – Direct Plan – Growth option on February 4, 2021 within cut-off time, the switch-in will be processed based on availability of funds for utilization purpose in scheme account of HDFC Top 100 Fund – Direct Plan i.e. on February 9, 2021. For more details, please refer to the NAV applicability grid below.

* Settlement Date is the date when redemptions are processed from the Switch out Scheme.

9. If a switch application is submitted within option of the same scheme i.e. same portfolio, will the NAV based on realization apply to the same?
No; NAV based on realization will not apply for switching between options of the same scheme / portfolio. For e.g. If a switch application is submitted within cut-off time for any amount from HDFC TaxSaver– Direct Plan – Dividend option into HDFC TaxSaver– Direct Plan – Growth option, the switch-out and subsequent switch-in will be processed as per the NAV of the same Business Day

10. If a switch application is submitted from a Liquid scheme into any other scheme on a Friday within cut-off time, what will be the impact as per new guidelines?
Switches from Liquid scheme will have below impact:
a. Switch-out from Liquid Fund for any amount will be processed with the NAV of the day prior to the next Business Day (e.g. Sunday NAV, if Monday is a Business Day)
b. Switch-in to any other non-Liquid scheme will be processed with the NAV of the next Business Day (e.g. Monday NAV if Monday is a Business Day)

Note: Where switch is received within cut-off time on Friday from a Liquid scheme to another Liquid scheme, Switch-in will be processed with NAV of Target scheme of the day prior to the next Business Day (e.g. Sunday NAV, if Monday is a Business Day). Switch-out will be as per Sunday NAV of Source Liquid Scheme.

11. Are these new guidelines applicable even if the subscription is submitted through online platforms like exchange/ Depository Participant/ MFOnline/ MFU etc?
YES. The new guideline is uniformly applicable for transactions done vide any and every platform including online modes.

12. Is there any option available to ensure NAV of the same day of submission of application for my subscription?
There are no assured ways to ensure the NAV of the same day of submission of application for subscription. However, using of online means like NEFT/ RTGS etc to directly transfer funds into scheme collection account along with submission of application within cut-off timing for the scheme is advisable.

13. My bank account has been debited on lumpsum transaction / SIP installment date, but I have not received allotment of units or I have received allotment of units at a NAV different than the Transaction / SIP installment date NAV
Allotment of units will be based on date and time of receipt of funds into the collection account of the fund house and not based on the debit date from investor’s bank account. It may be noted that different payment modes have different clearing cycles. Hence, there is possibility of difference in the lumpsum transaction date/ SIP installment date/ SIP debit date and the final NAV allotted for the lumpsum transaction / SIP installment. Please note that the same practice was followed earlier for SIP installments of Rs. 2 lakh and above. This practice is now extended to SIP installment of all amounts as per the guidelines in the referred SEBI circulars dated September 17, 2020 and December 31, 2020.

14. For the STP registered by me, I find that the NAV allotted for the switch-in transaction is not of the same day as the date of switch-out transaction though the amount is less than Rs. 2 lakh. Prior to February 1, 2021, the NAV of both switch-out and switch-in was of the same day. Please clarify.
As per the new guidelines, the NAV that will be applied to the switch-in scheme for the STP registered with us will be based on the date and time of availability of funds for utilization purpose in the switch-in scheme, irrespective of the STP amount. Thus, as per the settlement date of the switch-out scheme which depends on the scheme category, the NAV allotted to the switch-in scheme will differ. In short, the practice earlier followed for STPs registered for Rs. 2 lakh and above is now extended to all amounts.

Note: Refer to the NAV applicability grid on the next page

 

NAV APPLICABILITY GRID – w.e.f. February 1, 2021

1. NAV applicability all types of purchases/ switch-in (including for systematic purchases / installments where registration has taken place prior to February 1, 2021 and installments fall on or after February 1, 2021):

 

Scheme type	Amount (Rs.)	Time of receipt of application	Applicable NAV
Liquid & Overnight schemes	Any amount	Before & after applicable cut-off time	NAV of the day prior to the Business Day on which the funds are available for utilization (i.e. realization based NAV), subject to application received before cut-off time for the scheme. If the application is received after cut-off time for the scheme, NAV will be applicable as per the time-stamp date. For transactions received after the applicable cut-off time on Friday, the NAV of the day prior to the next Business Day which the funds are available for utilization (i.e. realization based NAV) will be applicable (e.g. Sunday NAV if Monday is a Business Day and funds are realized before cut-off on Monday).
Debt & Equity (Non-Liquid)	Any amount	Before & after applicable cut-off time	NAV of the day when the funds are available for utilization within cut-off time OR as per the time-stamp date, whichever is later.

 

2. NAV applicability for switch-in application received within cut-off time on a given day:

A. Switch from Non-Liquid Schemes:

Schemes	Amount (Rs.)	Switch-out scheme NAV	Switch-in scheme NAV
Equity Fund to Equity Fund	Any amount	NAV of the Business day as per the applicable time-stamp	NAV of switch-in scheme on switch-out settlement date*
Equity Fund to Debt Fund
Debt Fund to Debt Fund
Debt Fund to Equity Fund
Equity Fund to Liquid Fund	Any amount	NAV of the Business day as per the applicable time-stamp	NAV of the switch-in scheme on the day prior to the switch-out settlement date*
Debt Fund to Liquid Fund

 

B. Switch within the same / scheme i.e. portfolio (Liquid / any other schemes):

Transaction	Amount (Rs.)	Switch-out scheme NAV	Switch-in scheme NAV
Switch within options of same scheme i.e. portfolio and for dividend re-investment	Any amount	NAV of the Business day as per the applicable time-stamp

 

C. Switch-out from Liquid Scheme:

Particulars		Business Day followed by Business Day		Business Day followed by Non-Business Day
Schemes	Amount (Rs.)	Switch-Out Scheme	Switch-In Scheme	Switch-Out Scheme	Switch-In Scheme
Liquid Fund to Liquid Fund	Any amount	NAV of the Business day as per the applicable time-stamp	Same day NAV as the NAV applied to the switch-out scheme @	NAV of the day prior to the next Business Day	Same day NAV as the NAV applied to switch-out scheme @
Liquid Fund to Other Schemes	Any amount	NAV of the Business day as per the applicable time-stamp	NAV of switch-in scheme on switch-out settlement date*	NAV of the day prior to the next Business Day)	NAV of switch-in scheme on switch-out settlement date*

 

* ‘Settlement Date’ is the date when redemptions are processed from the switch-out scheme. Currently the settlement date on receipt of a valid purchase/ switch-in application within cut-off time of the scheme are as follows:

a.  Liquid and Debt Scheme - Next Business Day and also a Banking Day.

b.  Other than Liquid and Debt schemes - 3 Business Days and also a Banking Day.

@ Since redemption payout in Liquid scheme happens on next Business Day, and since switch-in scheme is also a Liquid scheme, it is eligible for Historic NAV i.e. NAV of the day prior to the next Business Day. This means same day NAV for both switch-in and switch-out Schemes.

Prepared as on January 1, 2021