Why Are Mutual Fund Investors Pissed?

Why Are Mutual Fund Investors Pissed?

Mutual Fund investors are vexed at the NPCI as its newly adopted system resulted in the piling up of orders. As a result, investors missed out on potential gains in the post-budget market rally. Investors are even demanding compensation for the potential gains! Let’s find out what happened.

Crux of the Matter

The Hitch

  • National Payments Corporation of India (NPCI) upgraded its system on January 31.
  • Since then, issues with the implementation of Mutual Fund orders started popping up.
  • Money is deducted through the digital gateway but units ordered by MF investors are either received late or not received at all.

What’s The Issue?
Step A
With increasing volume requirements and industry demands, NPCI updated its National Automated Clearing House (NACH) infrastructure on Jan 31. The NACH mandate deducts money from the investor’s account & then transfers it to the MF Scheme.

Step B
The planned migration was not implemented successfully. The amount was deducted without the units getting transferred to the account.

Step C
The upgradation coincided with SEBI’s new Net Asset Value (NAV) rules from February 1. SEBI’s new rules for orders above ₹2 lakh allow for the allocation of assets only when the fund leaves the bank settlement account and hits the Asset Management Company’s (MF issuer) account.

Step D
Hence with the persisting glitch, approximately 5 – 7 lakh transactions have piled up at payment gateways. Moreover, Sensex and Nifty have gained about 9 – 10% since Union Budget, making Mutual Fund investors more restless.

Who Is Accountable?
Side I:
The Mutual Fund investors are seeking compensation from fund homes on lost income for not receiving unit allotments on time.
Side II:
The fund home CEOs claim that unit allocation was not possible since the Mutual Fund never received the money.

Parties Involved

  • Investor’s Financial Institution.
  • Mutual Fund & its Payment Gateway
  • NPCI

Status Quo
NPCI released a statement that it is working with fintech companies and banks to resolve the glitch in its upgraded clearing system.

  • The first modern investment funds were established in the Dutch Republic. In response to the financial crisis of 1772–1773, Amsterdam-based businessman Abraham van Ketwich formed a trust named Eendragt Maakt Magt (“unity creates strength”).
  • At the end of 2019, mutual fund assets worldwide were $54.9 trillion, according to the Investment Company Institute.
  • The Vanguard Group, Inc. is an American registered investment advisor based in Malvern, Pennsylvania with about $6.2 trillion in global assets under management, as of January 31, 2020. It is the largest provider of mutual funds in the world.