Left high and dry! How mutual fund investors missed buying at lower NAV on election results day

On June 4, a serious glitch disrupted the mutual fund investments of numerous investors using online platforms such as Zerodha and Groww. Despite purchasing their mutual funds before the cut-off time, these investors discovered they were allocated the Net Asset Value (NAV) for June 5 instead of June 4, leading to notional financial losses.

In a social media post shared on X one of the investors shared the email reply by Groww stating "It acts solely as a platform for order placement and the entire process of fund collection, order placement, and allocation is managed directly by BSE.

BSE places the order with AMC once they receive payment confirmation from the banks within the cut-off time." In another post it was shared that there was a delay in fund reporting from the payment aggregator to the Indian Clearing Corporation (ICCL), which is a wholly-owned subsidiary of BSE and carries out the functions of clearing and settlement. This discrepancy compelled many investors to receive the following day's NAV, after the market had already rebounded by 3%, when the previous day on June 4, Nifty index fell by 6%.

However, BSE has clarified that there was no technical glitch from the exchange side. "There was no technical glitch at the exchange end on 4th June. However, there was some lag in receiving payments from UPI channel for a few customers." 

Investors found themselves in a whirlwind of blame-shifting among brokers, the Bombay Stock Exchange (BSE), and the payment aggregator involved. Notably, there was even a discrepancy between Exchange-Traded Fund (ETF) prices and their NAVs, adding to the chaos and confusion.

 

Dhirendra Kumar, CEO of Value Research, says, "It's very clear that the clogging happened at the payment gateway. The money did not move to the clearing corporation. And if the money does not reach the clearing corporation, no allotment of the NAV can be done because that is the SEBI rule. That is, till the fund company gets the money, and there is an acknowledgement of getting that money, either at the clearing corporation or to the registrar's before the cut-off time, units cannot be allotted."

"SEBI is very clear that if the fund company does not get the money, there cannot be an allotment. So if the money and the information of which fund one is buying is not in the fund company account or in the clearing corporation account, from where it will move to the fund company, allotment cannot be made. So even if the money has been debited from an investor's account but has not reached the fund company or the clearing corporation, one will not get that NAV, and that is where the delay happened. The delay would have happened for a variety of reasons because there are three entities involved here: the investors' own bank, the payment gateway and then the clearing corporation, for which the interface is BSE star. From there, the money has to move from the fund company to the registrar," he added further.

 

According to Securities and Exchange Board of India (Sebi) guidelines, the cut-off time for purchasing and switching mutual funds is crucial: 1 PM for Liquid and Overnight funds, and 2:45 PM for Non-Liquid funds. However, meeting these deadlines isn't just about completing your transaction; the funds must also reach the Asset Management Company (AMC) within this time frame.

For ensuring a same-day NAV, it is safest to buy directly from the mutual fund websites or apps. The CAMS app states "While some major banks are technically enabled to provide real time credit, not all payment aggregators/AMC may be integrated with all the banks. In such a cases the date  of credit to the MF account and unit allotment will happen on T + 1. Unit allotment will be subject to receipt of funds in the mutual fund account before the applicable cut off time of 3 pm."

Investors are also advised to use the same bank account linked to their mutual fund folio. Using a different account can lead to transaction suspensions that often require offline rectification, complicating the process further. Leveraging UPI IDs from the same bank or using BHIM IDs over aggregator IDs like GPay, PhonePe, and Paytm can also reduce the risk of such issues in future.

The June 4 incident is an eye-opener, highlighting the necessity for seamless coordination among all parties involved in mutual fund transactions to prevent future mishaps.