Daily NAVs may be reported a day late  

November 11, 2009

The proposed move by the Securities and Exchange Board of India (SEBI) to extend trading hours from the current five hours, 30 minutes to eight hours is only likely to increase the problems faced by various market participants. The agencies depending on market closing data are likely to be thrown out of gear following the implementation of SEBI’s directive. Mutual funds use the closing price data and compute the net asset value (NAV) for the day on this basis. The process of computing and disseminating the NAV information usually takes around three hours after the market closes. With daily trading currently halting at 3.30pm across all exchanges, reconciliation process takes place and NAVs are available not later than 7.00pm. However, now that SEBI has proposed to extend trading hours to 5.00pm, this data will only be available by 8.00pm. More significantly, processing of redemption requests will likely get delayed by a day, putting mutual fund investors in a spot.

Back-office staffers at various agencies related to asset management companies (AMCs) depend on this data for further processing. Computation of the NAV of any mutual fund involves co-ordinated working of related entities like the fund custodian, banks, registrar and brokers. The share balances and cash balances have to be computed on a daily basis, taking into account continuous redemption requests and margin payments. This reconciliation is done on an incremental basis, using the fund accounting mechanism. All entities involved have to work with a high degree of precision, within a matter of three hours. The custodian has to keep track of the number of shares bought and sold during the day, while banks have to keep up-to-date on the value of transactions taking place on a daily basis. Only after the concerned banks, the custodian and registrar reconcile and compute final value of transactions can the AMC publish NAV data for the day. Considering the huge number of scheme offerings in the market, these mutual fund agencies have their task cut out for them. –Sanket Dhanorkar [email protected]