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.
Curiopedia
- 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.