SEBI Proposes Revised Cut-off Time for Overnight Mutual Fund Redemptions
Moneylife Digital Team 21 January 2025
Market regulator Securities and Exchange Board of India (SEBI) proposed extending the cut-off time for redeeming units in overnight mutual fund (MF) schemes to 7pm from the current 3pm to facilitate operational efficiency for stock brokers (SBs) and clearing members (CMs) managing client funds. 
 
According to SEBI, the recommendation to revise the cut-off time came from the Association of Mutual Funds in India (AMFI) and the Mutual Funds Advisory Committee (MFAC). The proposed extension to 7pm is intended to provide sufficient time for the redemption process without affecting the valuation or redemption capabilities of the schemes, it added.
 
Redemption involves selling mutual fund units back to the asset management company (AMC) in exchange for cash. For mutual fund overnight schemes (MFOS), units must be held in dematerialised (demat) form and pledged with clearing corporations.
 
SEBI clarified that, since overnight schemes invest in securities with one-day maturity, extending the redemption timeline will not impact the fund’s valuation or operational processes. 
 
“Since the money has to be invested every day, for the amount of redemption requests received on trading (T)-day, such amount is not reinvested on T+1 day and instead is used for payouts. Due to this, the timeline of redemption, whether being 3pm or 7pm, shall not impact the funds’ valuation or capability to redeem investments," the regulator added.
 
This change, detailed in SEBI's consultation paper, is designed to give stock brokers and clearing members more time after market closure to un-pledge units of MFOS and submit redemption requests.
 
MFOS allows brokers and clearing members to invest client funds in low-risk, short-duration securities such as government bonds, repo markets and tri-party repo settlement (TREPS). These investments are intended to minimise risk due to their overnight maturity.
Comments
r_ashok41
3 months ago
good that sebi has woken up to reality
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