Three Applications, One Deadline: Cut-off, Realisation and a Bad Timestamp
On 28 March, the last business day of the financial year, three applications reach an RTA's official point of acceptance within forty minutes. (i) A private limited company applies to purchase units of a liquid scheme for Rs 60,00,000, handing over a cheque drawn on another bank; the form is time-stamped 2:55 p.m. The cheque is realised and credited to the scheme's collection account at 11:00 a.m. on 30 March. (ii) An individual submits a switch request at 2:45 p.m. moving Rs 8,00,000 from an equity scheme to an overnight scheme. (iii) A third application for Rs 40,000 in an equity scheme carries a 2:58 p.m. stamp, but the scanner log and the courier docket show it reached the counter at 3:12 p.m.; the counter clerk had pre-stamped a batch of forms earlier in the afternoon. The RTA must allocate NAVs before the 9 p.m. NAV run, and the AMC's compliance officer has asked for a written note on all three. Treat 28 and 30 March as business days and 29 March as a holiday.
1. Which NAV applies to the corporate purchase of Rs 60,00,000? Set out the rule you apply and the evidence the RTA should retain.
Read the worked answer
Rule applied. For purchases of Rs 50,000 and above, the applicable NAV is not the date on which the form is stamped but the date on which the funds are realised and available for utilisation by the scheme. The cheque date and the application date are both irrelevant to NAV allocation at this size.
Application. The Rs 60,00,000 cheque was realised on 30 March at 11:00 a.m. The liquid scheme's cut-off is 1:30 p.m., and realisation occurred comfortably before it. Because 29 March was a holiday, 30 March is the first business day on which funds were available, so the 30 March NAV applies - not the 28 March NAV the time-stamp would suggest.
Evidence to retain. The stamped application, the bank credit confirmation showing value date and time, the scheme's collection-account statement, and a system note recording the realisation date as the NAV trigger. If any provisional allotment was made on 28 March, it must be reversed and the folio adjusted, with the incident logged.
Common error to avoid. Treating the 2:55 p.m. stamp as decisive. That would give the investor a NAV for a day on which the scheme had no use of the money - a loss to the scheme and a breach of the realisation rule. The RTA should also confirm that the cheque was not a third-party instrument, which is separately impermissible.
2. The equity-to-overnight switch is stamped 2:45 p.m. Which NAVs apply to the two legs, and why must both legs carry the same date?
Read the worked answer
Rule applied. For a switch, the cut-off time is determined by the scheme into which the switch is being made, not by the scheme being exited. The overnight scheme's cut-off is 1:30 p.m.
Application. The request was received at 2:45 p.m., after 1:30 p.m. It is therefore treated as received after cut-off on 28 March, and the next business day's NAV - 30 March, since 29 March is a holiday - applies to both legs: the switch-out from the equity scheme and the switch-in to the overnight scheme.
Why the legs must match. A switch is economically a redemption and a purchase executed simultaneously. If the 3:00 p.m. equity cut-off were allowed to govern, an investor could lock in the 28 March equity NAV while the receiving scheme's NAV for the same date had already closed - a free option against the receiving scheme and its existing unitholders. Anchoring the cut-off to the receiving scheme removes that arbitrage. Conversely, had the switch been from the overnight scheme into the equity scheme at 2:45 p.m., the equity cut-off of 3:00 p.m. would have governed and 28 March NAVs would apply to both legs.
Operational note. The RTA's switch order entry must be built so the cut-off of the target scheme auto-populates; manual selection is the usual source of switches being mis-dated.
3. How should the RTA handle the Rs 40,000 application with the 2:58 p.m. stamp but a 3:12 p.m. actual receipt? Who bears any loss, and what controls should follow?
Read the worked answer
Correct NAV. The governing fact is the time of actual receipt at the official point of acceptance, not the ink stamp. The scan log and courier docket are contemporaneous system records and outweigh a pre-stamped form, so the request was received after the 3:00 p.m. cut-off and the 30 March NAV applies. Because the amount is below Rs 50,000, the realisation rule does not override this; the date of receipt ordinarily governs, subject to realisation.
Who bears the loss. Pre-stamping is an operational failure of the collection point. If the 28 March NAV was already allotted and it was more favourable to the investor, the differential is a loss to the scheme that must be made good by the party responsible for the stamping error - the RTA or collection agent - and not recovered from the investor, who acted in good faith. If the erroneous NAV was less favourable, the investor must be compensated for the shortfall. Either way the incident goes into the error register and is reported to the AMC and its trustees.
Controls to introduce. Prohibit pre-stamping outright; stamp at the moment of receipt with a serialised time-stamp device; reconcile the stamp register against the scanner log daily; segregate receiving from processing; and run a maker-checker on any manual time entry, with an exception report for applications stamped in the last ten minutes before cut-off.