Mutual Fund investors not allowed to buy or sell on Budget day

Investors in exchange-traded funds can trade on the bourses

While the equity market will remain open on Saturday, it will be a non-business day for mutual funds (MFs). This means investors will not be able to purchase or redeem MF units on Budget day.

The decision was taken at a meeting of the Association of Mutual Funds in India (Amfi) on Monday. “Some CEOs wanted it to be a normal transaction day but others were opposed. To avoid confusion in the minds of investors and maintain uniformity, it was decided Saturday would be a non-business day,” said a sector official.

Saturdays and Sundays are usually non-business days for MFs. There is no net asset value (NAV) allotment on non-business days, and the allotments to funds are resumed the following business day.  

The decision will impact equity investors who either purchase or redeem units after the cut-off time on Friday. Also, those wanting to switch from debt to equity schemes won't be able to do so, as there will be no trading in the debt market on Saturday. However, investors in exchange-traded funds (ETFs) will be able to buy and sell units and get real time NAV, as the units are listed on the exchanges.

As an investor, you get the same day's NAV if the amount invested is less than Rs 2 lakh and the application is received before the cut-off time of 3 pm. If the amount is Rs 2 lakh and above, you get the NAV of the day the funds are realised. So if you overshoot the deadline of 3 pm on Friday, you typically get Monday's NAV. However, had this Saturday been a normal business day, the units would be allotted at Saturday's NAV instead of Monday's.

Here is a possible scenario where an investor could have potentially lost or even gained if they had bought or sold their units on Saturday. Assume the market was to correct on Saturday and move up on Monday. In this case, those purchasing units after the cut-off time of 3 pm, would have got units allotted at Monday's NAV instead of Saturday's, implying a lower number of units due to a higher NAV. The reverse case would have been true as well.

Last week, the Securities and Exchange Board of India had intimated the stock exchanges that the market would remain open on the day of the Union Budget. Market participants had rooted for an extra day-long session to better price in the impact of policy announcements of the day.

ALSO READ: Markets will stay open on Budget day, says Sebi


ALSO READ: Five budget announcements that can stimulate the market