Retail investors eyeing an opportunity to capitalize on the June 4 market crash, spurred by election result uncertainties, faced disappointment due to delays in mutual fund allotments. As they sought to engage in value-buying at reduced market levels, many found themselves allotted units based on the subsequent day’s prices, eroding potential gains.
In the mutual fund realm, units are allocated to investors at the Net Asset Value (NAV) of the day when funds are received into the mutual funds’ accounts, adhering to specified cut-off times. For instance, if Investor A commits funds before the mandated cut-off of 3 pm on June 4, they should ideally secure units at the closing NAV of that day. However, any delays in fund receipt, extending beyond this cut-off, result in unit allocation based on the NAV of the following day.
The market turbulence on June 4, characterized by significant dips in benchmark indices such as NSE Nifty and BSE Sensex, was triggered by election outcome indications suggesting potential political shifts. Eager to leverage this market downturn, numerous investors injected lump sum investments before the 3 pm cut-off. Yet, grievances emerged as clients of investment platforms like Groww, Zerodha, and ETMoney voiced concerns on social media platforms, alleging allotments based on June 5 prices, a day marked by market recovery nearing 3 percent. These investors lamented the missed opportunity and attributed their losses to the delay in mutual fund allocation.
The payment mechanism intricacies in mutual funds dictate that unit allotments hinge on the timing of funds reaching Asset Management Companies’ (AMCs) accounts, traversing through various banking channels including sponsor and nodal banks. Since the inception of the pooling of funds mechanism mandated by SEBI in 2022, the flow of funds from investor bank accounts to clearing corporation accounts has become standardized. However, challenges persist in accurately mapping investor orders to corresponding payments, necessitating Management Information System (MIS) reports for exchange reference. Notably, BSE and NSE impose a 2:30 pm cut-off for processing equity fund payments internally.
The unprecedented volume witnessed in Indian capital markets on June 4 strained investment platforms, grappling with a surge in investments compared to typical days. Reports indicate that platforms experienced a sevenfold increase in lump sum investments, both in volume and value, exacerbating operational challenges. Industry insiders attribute delays to banks’ inability to expedite fund transfers, causing congestion and disruptions in the payment processing chain.
Acknowledging the concerns, representatives from investment platforms and industry experts underscored the systemic complexities exacerbating the delay. A spokesperson from Groww attributed delayed unit allocation to issues in money movement between banks, exchanges, and AMCs, particularly after SEBI’s regulatory adjustments. Moreover, challenges at private banks’ back-end systems compounded congestion, hindering transaction processing.
Despite reassurances that the majority of mutual fund transactions remained unaffected, industry estimates suggest thousands of transactions encountered issues on June 4. With nearly half a million transactions executed via investment platforms, the ramifications of these delays underscore the imperative for systemic improvements to ensure seamless investor experiences.
