sebi
Published on 15 July 2025
Proposed Changes to Enhance Mutual Fund Oversight and NAV Cut-Off Time
SEBI Proposes Extended Cut-Off Time for MFOS Redemptions to Ease Broker Operations
Mumbai | January 2025 — In a move aimed at enhancing operational flexibility for market intermediaries, the Securities and Exchange Board of India (SEBI) has proposed extending the redemption cut-off time for Mutual Fund Overnight Schemes (MFOS) from 3:00 PM to 7:00 PM. The proposal, released via a consultation paper dated January 20, 2025, specifically addresses the challenges faced by stock brokers and clearing members in managing client funds after trading hours.
This adjustment is not just a matter of convenience—it’s a regulatory refinement tailored to streamline fund flows, meet end-of-day compliance mandates, and uphold the liquidity and security of client investments.
Why the Change Was Proposed
Under SEBI’s current regulations, brokers and clearing members are required to transfer client funds to clearing corporations at the close of each trading day. These funds may be transferred in the form of:
- Cash
- Lien-marked fixed deposits
- Units of overnight mutual fund schemes (MFOS) under pledge
In practice, many intermediaries opt to use pledged MFOS units due to their low risk and overnight liquidity profile. However, the 3:00 PM redemption cut-off has made it difficult for brokers to unpledge and redeem MFOS units after the market closes—a time when most end-of-day settlement processes take place.
Key Elements of the Proposed Framework
1. Extended Redemption Cut-Off Time
| Current Deadline | Proposed Deadline |
|---|---|
| 3:00 PM | 7:00 PM |
This extended window will allow intermediaries to submit redemption requests after market hours, better aligning with the time when pledged assets are typically released.
2. Eligible MFOS Instruments
The extension applies only to overnight schemes that invest in:
- Risk-free government bond repos
- Overnight Tri-party Repo Dealing and Settlement (TREPS)
These instruments are considered highly liquid, secure, and virtually risk-free, making them suitable for parking client funds that may be withdrawn on demand.
3. No Impact on Fund Operations or Valuation
The redemption mechanics of overnight schemes differ fundamentally from other mutual funds. Since the underlying assets mature daily:
- There’s no need for early morning sale orders.
- Redemption proceeds are simply excluded from next-day reinvestment.
- NAV determination and fund valuation remain unaffected.
4. Consultation-Driven Reform
The proposal stems from detailed industry feedback, including input from:
- A SEBI-constituted Working Group
- The Association of Mutual Funds in India (AMFI)
- The Mutual Funds Advisory Committee (MFAC)
SEBI has invited public comments on the proposal until February 10, 2025, reaffirming its commitment to a consultative and data-driven regulatory process.
Implications for Key Stakeholders
Stock Brokers & Clearing Members
- Gain more time post-trading hours to redeem MFOS units.
- Improved alignment with SEBI’s end-of-day client fund transfer obligations.
- Reduced operational bottlenecks during high-volume settlement windows.
Mutual Fund Houses
- No disruption to overnight scheme operations.
- Maintains asset-liability consistency and valuation integrity.
Investors (Retail & Institutional)
- Continued safety and liquidity of investments.
- Improved fund flow efficiency, particularly for large institutional players using pledged MFOS as collateral.
Final Thoughts: A Tactical, Risk-Calibrated Adjustment
SEBI’s proposal to extend the MFOS redemption deadline is a measured policy change rooted in market feedback and operational practicality. It balances the need for efficiency among brokers and clearing members with the continued protection of client assets.
The move is part of SEBI’s broader strategy to modernize post-trade infrastructure, align regulatory norms with real-world fund flow dynamics, and ensure robust yet responsive oversight in India's rapidly growing capital markets.
If adopted, this reform will smoothen end-of-day settlements, reduce compliance friction, and strengthen the utility of overnight schemes as a low-risk, flexible vehicle for managing surplus client funds.