WORLD OF CRISIS

May 19, 2009

Fund houses stop accepting applications for equity funds

Research Bureau Investors looking to take the mutual fund route because they couldn’t place direct orders in the stock markets on Monday too would have been a frustrated lot.

Quite a few fund houses did not accept fresh applications for their equity funds after 11 am, as the markets remained frozen due to the trading halt.

The fate of application forms accepted before 11 a.m. also hangs in the balance.

Fund houses that Business Line spoke to confirmed that fresh applications were not accepted but an official decision declaring Monday a non-business day was awaited from the Association of Mutual Funds in India.

Equity funds usually allow investors to buy units at the same-day NAV. Most of the fund houses deploy the funds collected under their equity funds before 3 p.m. the same day.

As the markets remained closed for most part of the day, fund houses were not in a position to deploy the money collected.

Index funds decided not to accept applications as that would have widened their tracking error.

As tracking error norms (tracking error is the difference between returns from the index fund to that of the index) are stringent for index funds, holding cash during a sharp market rise could pose problems on the performance of the schemes. But for other equity schemes, fund houses need not necessarily deploy the cash the same day.

It appears that mutual fund houses have approached the AMFI to treat Monday as a non-business day.

Most of the fund houses Business Line spoke to were not keen to offer an official explanation and were waiting for communication from the Association of Mutual Funds in India.

Fund distributors said this was a new situation for them.

“Fund houses should honour the application forms accepted during the day, especially after investors have lost money over the past year,” said one AMFI-certified

0 Comments: