CHIEF GENERAL MANAGER
MUTUAL FUNDS DEPARTMENT
MFD/CIR/ 08 / 514 /2002
July 22, 2002
All Mutual Funds Registered with SEBI, Unit Trust of India, Association of Mutual Funds in India
Uniformity in calculation of Sale and Repurchase Price
As you are aware, Regulation 49(3) of SEBI (Mutual Funds) Regulations, 1996 lays down parameters for determining sale price and repurchase price of mutual funds units applicable for investors. It has been observed that mutual funds are using two different methods for calculating the sale and repurchase price of mutual fund units. While some of the mutual funds are using either of the two methods for sale as well as repurchase prices, others are using one formula for sale price and another for repurchase price. It leads to minor variation in the amount payable to investors or number of units allotted to them and may also create confusion in their minds because of different practices being followed in the mutual funds industry. You would appreciate that there should be one method for such calculations to be followed by all mutual funds on a uniform basis and which is easily understood by the investors.Online GST Certification Course by TaxGuru & MSME- Click here to Join
After a detailed discussion with the mutual funds industry, it has now been decided that a uniform method shall be used by all mutual funds to calculate the sale and repurchase price. It must be clarified in the offer documents that the loads shall be charged as a percentage of Net Assets Value (NAV) i.e. applicable load as a percentage of NAV will be added to NAV to calculate sale price and will be subtracted from NAV to calculate repurchase price. In other words the following formulae shall be used:
Sale Price = Applicable NAV *(1 + Sales Load, if any)
Repurchase Price = Applicable NAV *(1 – Exit Load, if any)
You are also advised to explain this by means of the following example in the offer documents – if the applicable NAV is Rs 10.00; sales/entry load is 2 per cent and the exit/repurchase load is 2 percent then the sales price will be Rs 10.20 and the repurchase price will be Rs 9.80.
Rounding off NAVs
Further, as recommended by Association of Mutual Funds in India, you are advised to round off NAV upto four decimal places in liquid/money market mutual fund schemes i.e in case of schemes which invest predominantly in money market instruments and upto two decimal places in respect of all other schemes, so that there is uniformity in the mutual funds industry. This shall be clarified in the offer documents also.Applicability
The above disclosures pertaining to calculation of sale and repurchase price and rounding off NAVs shall be made in the new offer documents and while updating the existing offer documents as required under SEBI Guidelines.
These guidelines effective from August 5, 2002 for all existing and new schemes are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.