High value MF investors enjoy cut-off time benefit

Despite regulations to discourage late trading and introduction of time stamping machines, anomalies persist in the mutual fund sector.

This is particularly rampant in respect of crediting high value clearing cheques into debt scheme subscriptions.

This loophole "" inherent in the regulations themselves "" gives big ticket investors a nine-day return over a one week horizon.

It works in the following way: A high value investor deposits an application before the cut-off time of 3 pm on Friday. This entitles him to Friday's net asset value.

Since there is no high value clearing on Saturday, the cheque only gets cleared on Monday.

Theoretically, if the investor under question has a one week horizon, he gets a return for nine days. So the high value investor gets an unfair advantage over an ordinary investor.

This happens whenever there is a holiday in between two working days.

Industry sources pointed out that the regulations should clearly specify that the investor should get the NAV of the day prior to when the funds actually get utilised. So in this case, Sunday evening's NAV should be applicable.

Still big value investors get the advantage of an extra two days. This impact is felt all the more if there is any development impacting the debt markets on a Saturday.

Another anomaly which has arisen purely due to technical reasons is of outstation cheques. Outstation investors never get the NAV of the day when they deposit their applications.

They get the NAV of the day when the cheque is realised, which takes a minimum of three days. So outstation investors are at a disadvantage compared to those living in the main collection centres.

Industry sources say that the easiest way to clear the late trading problem is by introducing uniformity and allowing the NAV of the day when the cheque is realised, irrespective of whether it is an ordinary cheque, a high value cheque or an outstation cheque.