Mutual fund (MF) investors have got respite from the long weekend that is due to begin from September 29. The Association of Mutual Funds of India (AMFI; the MF industry’s trade body), is about to declare September 29 (Friday) as a business day. As per industry sources, this decision was taken earlier today, though an official notification is yet come.
This means that those who had put in a redemption request on September 27 (Wednesday) will get their money on September 29, despite it being a bank holiday on account of Eid. Up until now, investors were in a tizzy due to in part a long weekend and part due to the closure of equity and fixed income markets, starting from September 28 (Thursday) to October 2 (Monday).
Earlier, September 28 was meant to be a holiday on account of Eid-E-Milad. However, due to Ganesh Visarjan (the last day of the Ganesh festival where idols are immersed), the Maharashtra government shifted the public holiday to September 29 (Friday). In other words, September 29 is now a bank holiday where banks will be shut. However, due to the initial plan of declaring September 28 as Eid-E-Milad holiday, the fixed income markets and settlement systems shut down for a holiday on September 28, declared as a non-business day. This, MF industry experts, is irreversible, despite the bank holiday being pushed back by a day.
Put it in another way, the money that MFs accepted on September 27 and deployed it in markets, will not be available for redemption on September 28. A non-business day is when MFs do not deploy any money in the fixed income markets nor facilitate any redemption. Although banks are open on September 28 and investors can transfer money to MFs too, using internet banking, Real-Time Gross Settlement System (RTGS) and National Electronic Funds Transfer (NEFT) on bank working days (such as September 28), fund houses won’t be able to pay for previous day’s redemptions because the money was deployed for two days and hence MFs have declared today as a non-business day.
To be sure, mutual funds facilitate redemption in two working days, that is T+2. Which is why, redemption requests put in on September 27 should ideally materialize on September 29. But last-minute shifts of public holidays, then a weekend and then another national holiday on October 2 (Mahatma Gandhi Jayanti) would have meant that investors would have got their money only on October 3 (Tuesday).
However, on September 28, AMFI decided that September 29 will be a business-day for MFs, despite it being a bank holiday. This means, that mutual funds would be able to deploy the money in the markets and even withdraw, to facilitate redemptions. Typically, a bank holiday translates to a non-business day. But on account of the long weekend and the government’s last-minute decision to shift the bank Eid-E-Milad bank holiday by a day, it upset a few investors who were counting on redemptions to happen in the interim.