Suppose, I have a SIP today of 10k
- Will the fund manager buy the stocks in that mutual fund today immediately? Or he can wait for 2-3 days? How much time does he have to buy it?
- Does he buy it using a limit order or market or it can be anything?
Both are his decisions.
He can wait for any number of days before buying
But we get the nav of that day. Is it fair to buy the stocks later at a higher or lower price?
What is the advantage of waiting?
NAV of that day is after cash component, stocks, etc. NAV will go higher if he has more cash than yesterday and stock prices didn’t change.
After you buy, you cannot consider that your money is sitting in cash because the fund manager didn’t buy any stocks that day.
If after your payment, the ratio of stocks:cash in the fund is 80:20, 80% of your money is then already in those stocks. That’s how NAV works.
You can also think like your payment is used to service someone else’s redemption. So you get his MF units and he gets your money.
You’re paying an expense ratio to the fund manager to let him figure out when to buy. It’s the AMC’s decision in the end
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I assume this is how the NAV is calculated, when new investments for the day are kept as cash.
For eg:
If a MF has an AUM of is ₹1cr and there are 1 lac units, the current NAV will be ₹100 per unit.
If at the EOD the investments of the MF grew by 1% (after accounting for AMC expense).
The EOD NAV = ₹100 * 101%
= ₹101 per unit.
So if someone invests ₹10,000 before the cut-off time, they will be allotted ~99 units.
₹10,000/₹101= 99 units.
if the AMC doesn’t invest the money received on the same day, it will be added to the cash balance, and if they invest it on the same day, it will be reflected in the EOD market value of the investment.
Assuming the ₹10,000 is kept as cash, the AUM at the EOD will be
= (1cr * 101%) + ₹10,000
=₹1,01,10,000
Total number of units will be
= 100,000 + 99
= 100,099
NAV = ₹1,01,10,000 / 100,099
= ₹101
Right ???
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