Do you know from now onwards you have to pay exit load in Liquid Funds if you redeem within 7 days? Let us see the Graded Exit Load in Liquid Funds effective from 21st October 2019. SEBI Introduced the graded exit load for Liquid Funds.
Why exit load in Liquid Funds?
Earlier there was no exit load in Liquid Funds. You are free to withdraw even on the same day. However, many of you may be aware that due to lot of issues debt space, SEBI introduced two changes and they are as below.
# Liquid funds will hold at least 20% of net assets in liquid assets (Cash, Government Securities, T-bills and Repo on government Securities) from April 1, 2020.
# Introduction of graded exit load.
These two norms as per SEBI will bring in lower volatility and higher safety to Liquid Funds. Due to 20% of net assets in liquid assets means the fund will not experience a sudden exit pressure during bond market stress. Also, due to the graded exit load, the fund will not experience sudden liquidity issue especially from corporate.
Even though these two measures are meant for safety and reduce volatility. But it in no way serve the purpose of Liquid Funds.
Many of us (including corporates), invest in Liquid Funds just because to park our idle money. If there is an exit load and also returns a bit lower due to 20% of net asset in liquid assets means many may switch to safer and liquid fund category like Overnight Funds.
Usually, many Liquid Funds hold around 10% in cash mode to manage the liquidity issue. However, to generate higher returns sometimes fund managers may hold less cash. For example, in the case of the HDFC Liquid Fund, the cash holding is around 3.56%. However, the Quantum Liquid Fund is holding around 18% in cash mode.
Same way, ICICI Liquid Fund holding no cash at all. However, Parag Parikh Liquid Fund is holding around 18% in cash mode. (Data as on 30th Sept 2019).
Hence, to bring in uniformity. SEBI proposed at least 20% in cash holding. This will reduce the liquidity pressure and lower impact on NAV volatility.
Graded Exit Load in Liquid Funds Effective from 21st October 2019
Let us now look at the graded exit load in Liquid Funds Effective from 21st October 2019.
Hence, to exit from Liquid Funds without any exit load, you have to wait for 6 days’ completion. On the 7th day only you have allowed withdrawing without any exit load.
New Cut-Off Timing for Liquid Funds effective from 21st October 2019
Along with the above changes, SEBI also did the changes to Cut-Off Timing for Liquid Funds. The earlier cut-off timing for the day was 2 PM.
However, with effective from 21st October 2019, the new cut-off timings is 1.30 PM.
Suppose you invest before this cut-off timing, then you are eligible for the same day NAV. Otherwise, the next day NAV will be considered for your investment.
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