'Buy-the-dip' failed mutual fund investors on election day: Here's why

Several investors had taken to social media to complain about being unable to square off their positions

When the results of the 18th Lok Sabha elections were announced, mutual fund investors aiming to capitalise on a stock market dip on June 4 were in for a surprise. A "technical glitch" caused a delay in execution, resulting in Net Asset Values (NAVs) being allotted the next day.

 

The Bombay Stock Exchange (BSE) refuted claims that a technical glitch caused the delay in mutual fund NAV calculations. Instead, they attributed the lag to delayed payment data from banks.

 

What happened on June 4?

 

Based on exit polls released on June 1, predicting a strong win for the BJP and its NDA alliance, equity markets surged by 3-5% on June 3. However, the final results on June 4 were starkly different, leading to a significant market crash. The Sensex plummeted 4,390 points, or 6 per cent, closing at 72,079. This marked the worst single-day drop in four years.

 

 

Many mutual fund investors viewed this correction as an opportunity and made lump sum investments.

 

According to Sebi regulations, the cut-off time for mutual fund trade registration and NAV calculation is 3 pm. If funds are credited into the mutual fund’s pool account before this cut-off, the NAV should reflect that day's value.

 

However, many mutual fund investors who bought units to take advantage of the market correction were surprised to find their NAVs reflecting June 5 values instead of June 4. The aim was to benefit from the market recovery, but the delayed NAV calculations thwarted this plan.

 

The day after the election results, Indian equity markets recovered most losses, with the BSE climbing over 3 per cent.

 

Several investors using platforms like Zerodha, Groww, Upstox, and Angel One reported that their orders, placed before the cut-off time, were not executed on the same day. Instead, they were processed the next day, leading to significant financial losses.

 

BSE's response

 

The BSE issued a statement saying, "It is hereby clarified that there was no technical glitch at BSE Clearing House (ICCL) on June 4. Prima facie, there was a lag in receiving details of credit/payments from payments aggregator(s)/bank(s) for a few customers, which led to the delayed NAV."

 

RBI's statement

 

During a monetary policy press conference on Friday, the RBI said that daily UPI transactions range between Rs. 40 to 45 crore, putting significant pressure on the system. The RBI clarified that there were no delays from NPCI's side, but some delays might occur at the banking level. The central bank is working with specific banks to resolve these issues.