Indian mutual fund houses have once again opened their doors to selective investments in their overseas funds. However, investors need to be aware of a minor complexity associated with these international funds. The net asset values (NAV) of such funds take a bit longer to be determined. This blog post explores the recent developments in the Indian mutual fund industry, highlighting the changes in NAV declaration timelines and the impact on investors.
Recent Developments
Mutual fund houses like PGIM India, SBI, and Aditya Birla Sunlife Mutual Fund have allowed investors to subscribe to units of their schemes investing overseas. Aditya Birla Sunlife Mutual Fund has also merged two schemes to realign its international equity offerings. These developments have attracted increased investor interest in schemes investing abroad, although the interest is concentrated in certain pockets.
NAV Declaration Timelines
Mutual fund schemes are required to disclose their daily NAVs by 11 pm Indian time. Fund houses value the securities held in their portfolios and calculate the NAV for the day, considering the latest traded prices of each security. However, for schemes investing overseas, this poses a practical difficulty. Some securities trade in markets that remain open beyond the 11 pm deadline. As a result, until 11 pm, only the previous day’s NAV for overseas mutual fund schemes, where Indian mutual fund schemes have invested, will be available. For example, the US market, a popular international market for Indian investors, opens at 9:30 am EST (about 7 pm India time) and closes after the 11 pm deadline for Indian MF NAVs.
SEBI’s Relaxation
In March 2023, the Securities and Exchange Board of India (SEBI) offered a relaxation to address this issue. It allowed fund houses to declare NAVs of their international schemes on the following day (T+1). If an Indian mutual fund scheme invests in units of overseas schemes, the NAV must be declared by 10 AM on the next business day. If the underlying scheme takes longer to announce its NAV, the fund house must provide clear information about it in the scheme information document (SID).
Reason for the Change
The regulator aims to ensure that fund houses report accurate NAVs by considering the same day’s prices. This provides a fair representation of the scheme’s performance. By using the previous day’s prices to calculate the NAV of a given day, significant price movements in underlying securities may result in an NAV that does not reflect the unit’s true worth.
Impact on Investors
The change in NAV declaration timelines does not significantly impact investments in Indian mutual fund schemes. The rules related to cutoff times, transaction processing, and exit loads remain the same. If an investor completes a purchase transaction and the fund house receives the money before the cutoff time for a given business day (3 pm), they will receive that day’s NAV. However, the confirmation may be delayed as the fund house needs to incorporate the NAV in the confirmation message.
Previously, a fund house would confirm the processing of a purchase transaction early on the next business day. With the new timelines, investors will receive the confirmation after a few hours or, in some cases, a day later. The confirmation of sale transactions is also subject to delay. Nevertheless, all other aspects of investments in mutual fund schemes remain unchanged.
Indian mutual fund houses have reintroduced investments in their overseas funds, albeit selectively. While the NAV declaration timelines have been adjusted to accommodate international market trading hours, the impact on investors is minimal. It is crucial for investors to understand the changes and be aware of potential delays in confirmation messages. Overall, the recent developments aim to provide investors with a more accurate representation of scheme performance and ensure transparency in the Indian mutual fund industry.