Non-business day for fund houses on equity schemes

Though markets went up over 17 per cent, mutual fund investors wanting to book profits were disappointed today. The Association of Mutual Funds in India (Amfi) declared that Monday will be a non-business day for equity schemes. These include equity as well as hybrid funds. Debt schemes were functioning regularly.

This means, any investors who had submitted an application to the fund house for purchase or redemption on Monday, before 3 pm will not get the net asset value (NAV) of the current day. The applications for both, redemption and investments will be processed based on tomorrow's NAV. This will also apply to those who invested after 3 pm on Friday.

“Markets were barely open for few minutes. Mutual funds could not trade. So, if it would have been a working day, the money coming in or going out of funds would have harmed the existing unit holders,” said Sundeep Sikka, CEO, Reliance Mutual Fund.

As markets were closed after hitting the upper circuit, mutual funds could not buy or sell stocks. But the value of their existing investments did go up with the market rally. If a person would have applied for redemption, mutual funds would have had to give out money at a higher value despite on not being able to book profits or sell shares to meet their redemptions pressure. That also would have meant that fund houses would have had to dip into their cash holdings.

“It is only fair to the existing unit holder. Because, if the current scenario persists and investors are allowed to redeem, mutual funds will be out of money without being able to sell their existing assets,” said an industry expert.

Few funds took an individual decision to call it a non-business day. Later, collectively mutual fund houses approached Amfi to make it applicable across the industry, which it accepted after consulting the market regulator, Sebi.

As a result of Monday being a non-business day, some fund houses such as Birla Sun Life and Reliance mutual fund said that they will not declare the NAV. Some were planning to declare it but only for a reference, said a distributor. In their offer documents, fund houses declare that they can have a non-business day in case of an extraordinary situation.