Sebi set to stop 'smart' investing in MF plans
Friday, 5 November 2010
MUMBAI, Nov 4 (Economic Times): The Securities and Exchange Board of India (Sebi) plans to put a stop to a practice where investors, mostly companies, work around the cut-off timings that mutual funds have for accepting cheques in liquid funds to make easy money, said two persons familiar with the matter.
These investors put money in liquid schemes, where corporates park surplus money for a short term, usually a Friday or Monday before 12 pm. This helps the investor get the previous day's net asset value.
So, if an investor gives a cheque to the fund house to invest in its liquid scheme before 12 pm Friday, he would get Thursday's net asset value (NAV). Similarly, if he puts money before 12 pm Monday, he would get Sunday's NAV.
At the time of submitting a liquid scheme application, investors also instruct the mutual fund to switch the investment to a liquid plus scheme the same day (Friday or Monday) before 3 pm.
Liquid plus schemes, now known as ultra short-term schemes, invest in debt paper with shorter tenure than liquid funds.
The switch before 3 pm also helps these investors get the liquid plus scheme's NAV for Friday in addition to the liquid scheme's NAV for Thursday. If the investor had put money only in the liquid scheme, the return would be generated from next day.
But by migrating to liquid plus after a few hours of investing in the liquid scheme, the investor is in a position to earn an extra day's return.
These investors put money in liquid schemes, where corporates park surplus money for a short term, usually a Friday or Monday before 12 pm. This helps the investor get the previous day's net asset value.
So, if an investor gives a cheque to the fund house to invest in its liquid scheme before 12 pm Friday, he would get Thursday's net asset value (NAV). Similarly, if he puts money before 12 pm Monday, he would get Sunday's NAV.
At the time of submitting a liquid scheme application, investors also instruct the mutual fund to switch the investment to a liquid plus scheme the same day (Friday or Monday) before 3 pm.
Liquid plus schemes, now known as ultra short-term schemes, invest in debt paper with shorter tenure than liquid funds.
The switch before 3 pm also helps these investors get the liquid plus scheme's NAV for Friday in addition to the liquid scheme's NAV for Thursday. If the investor had put money only in the liquid scheme, the return would be generated from next day.
But by migrating to liquid plus after a few hours of investing in the liquid scheme, the investor is in a position to earn an extra day's return.