Meet to take up cut-off timing for mutuals

 Market sources said SEBI has been concerned over the issue of uniform cut-off timing to avoid any possible anomalies arising out of the different timings for different MFs.

 The issue, they said, assumes significance following the upheavel in the overseas market since the Securities Exchange Commission commenced a probe into certain fund houses which were backdating cheques. The SEC is now considering setting a daily deadline for trades of mutual fund shares.

 A major issue which is to come up for discussion at the meeting is whether to assign NAVs only after the realisation of the cheque. This was briefly touched upon at a meeting of the Association of Mutual Funds of India (Amfi) on November 13, but will be taken up more fully at the Sebi meeting, said sources.

 They added that this idea of assigning NAVs after the cheque realisation did not meet with any objection from any of the funds but the implementation issue remained to be resolved. The idea behind this is that the NAV would be assigned only when there is an actual usage of money.

 Sources said some fund houses have been engaging in late trading to benefit high net worth clients. Late trading happens after close of the market hours based on exclusive information to benefit a few clients.

 Amfi has also tentatively proposed a time between 2:30 pm and 3 for the cut-off in case of equity schemes and between 3:30 and 4 pm for debt schemes. However, the exact timing will be fixed later, sources said depending upon the time taken for back-office functions.

 Liquid funds might be kept out of the purview of this since mostly it comes in the form of high value cheques that get cleared by 12 pm and the money is utilised the same day. Of course, high value cheques have to be given to the fund by 11am in the morning.

 Most mutual funds provide back-dating accommodation to their high value clients and this is an accepted practice, but the cheque has to be realised in the same day.

 Sources said the problem arises when funds do arbitrary back-dating without any regard to the timings for some clients while for other categories of investors they follow the practice of forward pricing, that is the next day