Sebi Revises Cut-Off Timings For Determining NAV In Overnight Mutual Fund Schemes

The capital markets regulator, the Securities and Exchange Board of India (Sebi), has revised the cut-off timings to determine the net asset value (NAV) when repurchasing or redeeming units in overnight mutual fund schemes. The changes are set to take effect from June 1, 2025 onwards. The regulator had said in its circular dated December 12, 2023, that this revision will allow stock brokers and clearing members to “un-pledge units of overnight schemes and place repurchase or redemption request with mutual funds, after the close of market hours.”

Sebi, through the same circular, specified a framework for stock brokers and clearing members to upstream all clear credit balances of their clients to clearing corporations on 'end of day' basis.

The regulator had mandated that clients’ funds must be transferred by stock brokers or and clearing members to the clearing corporations (CCs) only in either cash, secured through Fixed Deposit Receipts (FDRs), or a pledge of units in overnight schemes that are purchased with client funds.

In order to smoothen this working, the Association of Mutual Funds in India (Amfi) and Mutual Funds Advisory Committee (MFAC) recommended a change in the cut-off timings to determine NAV of overnight funds with respect to repurchase of units. 

New Cut-Off Timings In Overnight Funds

Sebi then came out with a consultation paper, seeking public feedback on the same. Based on the feedback received, the regulator made the following changes in its master circular for mutual funds dated June 27, 2024:

• If an investor places a repurchase order by 3 PM, the NAV used will determined by the closing NAV of the day just before the next business day. 

• In case an investor submits an application after 3 PM, the NAV will be ascertained on the basis of the closing NAV of the next business day.

However, the regulator said that if the request is placed online for overnight fund schemes, a cut-off time of 7 PM will be applicable. The existing cut-off time for online applications is 3 PM as of now.

The regulator also clarified that a “business day” excludes any day when money markets are closed or not accessible.

What Are Overnight Funds

Overnight mutual funds are open-ended debt funds that invest in securities with a maturity period of one day. Since the securities mature every day, the fund manager reinvest the proceeds into new securities each day.

According to Amfi, “Overnight funds are suitable for businessmen or entrepreneurs who constantly need to park large sums of money for very short periods of time until it can be deployed elsewhere. They are also ideal for building Emergency Funds if you want to set aside some money for emergency needs. Your investment can earn some growth while remaining handy since these funds also offer the highest liquidity.”