Market regulator Securities and Exchange Board of India has allowed asset management companies (AMCs) to offer instant access facility in overnight schemes of mutual funds. Earlier, AMCs were allowed to offer such a facility only in liquid schemes. Instant access facility (IAF) facilitates credit of redemption proceeds in bank account of the investor on the same day of redemption request.
In a circular, SEBI said "MFs and AMCs can offer IAF only in overnight and liquid schemes of the MF".
SEBI has also tweaked the framework for unclaimed redemption and dividend amounts. Effectively the market regulator has modified its 2017 circular, allowing mutual fund houses to offer instant access facility in overnight funds. This is in addition to liquid funds, which were earlier made eligible for this facility. The new rule is applicable with immediate effect.
Instant access facility is an option available to investors, who opt to get access to their funds within a few hours or even minutes of giving the redemption request. Investors can withdraw up to 90% of the value of their units, subject to a cap of Rs50,000 under the IAF.
Ordinarily redemption proceeds from debt funds, including liquid funds are credited to the investor’s bank account in one-two working days.
Overnight funds were a category created by SEBI in October 2017. They are permitted to invest in debt securities maturing within one day and this makes them highly liquid and relatively low risk in nature.
Separately, the regulator says unclaimed redemption and dividend amounts, which are currently allowed to be deployed only in call money market or money market instruments, can also be invested in a separate plan of only overnight, liquid and money market mutual fund schemes floated by AMCs specifically for deployment of the unclaimed amounts.
Previously such money could be invested in call money, liquid, and money market instruments. The total expense ratio that fund houses can charge for such plans will be capped at the expense ratio of the direct plan or 0.5%, whichever is lower. AMCs cannot charge exit loads in such plans.
This is subject to the condition that such schemes where the unclaimed redemption and dividend amounts are deployed will be only those overnight, liquid and money market mutual fund schemes which are placed in A-1 cell -- relatively low interest rate risk and relatively low credit risk-- of potential risk class matrix.
SEBI said the guidelines related to IAF will be applicable with immediate effect while those pertaining to unclaimed redemption and dividend amounts will come into effect from 1st December. Typically, overnight funds are debt funds which invest in overnight assets, or securities with a residual maturity of one day.
Such funds invest in CBLOs (collateralised borrowing and lending obligations), overnight reverse repos, and other debt or money market securities that mature in one day. Liquid mutual fund is a debt fund which invests in fixed-income instruments like commercial paper, government securities, treasury bills, among others, with a maturity of up to 91 days.