Recently mutual fund investors faced delays in unit allotments when they made their payments at the right time. Financial experts say that mutual fund investors should use digital payments instead of checks to avoid this kind of problem. It takes up to three days for the check to be cleared. Due to this, investors do not get immediate benefit of market boom. This problem does not occur to an extent in digital payments.
What causes delays in allocation of MF units?
Payment was delayed due to a planned system upgrade at NACH, an automated payment system operated by NPCI. This also had an impact on lump sum payments and allocation of SIP mutual fund units. As a result, the purchased unit was not allocated on the same day. As per Sebi rules, units will be allotted only after the fund house receives all the money from February 1. Investors suffered heavy losses due to delayed payments. They could not take advantage of the post- budget market rally.
How are mutual fund units allocated?
To buy an MF unit, two conditions must be met. Firstly, the investor should place the cut-off time for equity and debt MF schemes before 3 pm, and for liquid funds by 1.30 pm. Second, investors’ money must reach the fund house before the units are allocated.
Does this also affect SIP?
Yes, even if your SIP is scheduled for a particular day, it is necessary for the funds to reach the fund house before the units are allotted. This is not a problem in switching from STP or liquid funds to equity funds. However, SIP investment happens every month. In such a case, delaying the installment of a SIP does not make much difference to your returns.
What is the effect of delay in payment?
You will not get the unit allotted on the day you pay for the unit. The disadvantage of this is that if you are investing a large amount together and the market gets a big bounce that day, then you miss out on taking that opportunity. However, such a major disadvantage does not occur in the SIP case. According to experts, digital payments should always be used in investing in mutual funds. This does not delay unit allocation. At the same time, there is a delay in payment by check.
What is the way to avoid this?
If you pay through UPI then you get allotment on the same day. Also, using the same bank for payment also prevents delays. Another option is ETF which you can buy through your stock broker. The ETF trades throughout the day, you can see its value. With this, SEBI and RBI will have to intervene in this case.