Is there an investment opportunity in PSP Projects shares?

The mutual fund industry has come under a lot of flak over the past few days on investor grievance that the units were not being allotted to investors as per the timelines. The cause was a technical glitch at the end of the settlement and payment processing vendor – National Payments Corporation of India (NPCI).

NPCI has stepped in and clarified that the problem arose due to a system upgrade glitch carried out by them at NACH coinciding with the February 1, 2021 deadline set by Securities Exchange Board of India to allow issuance of units only if the application and money are received by fund house before the cut off time. This deadline set by SEBI was postponed earlier. Despite NPCI’s attempts the system upgrade did not go as planned. NACH or National Automated Clearing House facilitates processing of recurring payment mandates including mutual fund SIP payments.

The delay in allotment of units has led to complaints that investors were not being able to participate effectively in the ongoing bull market in India since February 1. Investors would surely stand to lose if the market moves up as they are getting the units allotted at higher prices than they should have got. One cannot blame investors who have put in their money and are seeing the market moving up without units in their account. However, the regulator and financial services industry need to focus on the bigger issues here.

When a regulator wants to tighten the rules, the intention is always to improve the functioning of the system and the industry. In this case, SEBI had taken the right step to do away with the old practice of issuing the units even if the money reached the fund house a couple of days later. There is not point to start a blame game but what is needed a thorough look into the reasons behind the glitch to ensure that such issues do not arise in future and to put in place a robust framework of standard operating practices for future when the ‘market infrastructure’ goes for an upgrade or change of a large scale.

On another front, the delayed allotment episode further underlines the limited understanding of many mutual funds investors of the way SIPs work to create wealth. A majority of the transactions affected in this episode are systematic SIPs using NACH mandate. When an investor signs up for an SIP the idea is to spread out the investments over a period of time. Monthly SIP spread over a period of time ensures that the investments in a volatile asset class such as equities are not subject to timing risk.

Those who understand this should not worry too much if one installment out of the many is deployed late by just a couple of days. SIP returns may not significantly vary if one stays invested for long. Investors should be aware that SIP takes care of the age-old principle which says it is not the timing that matters, but the time in the market that matters.

It is therefore not fair to blame the mutual funds industry which has over the years helped create wealth of millions. It is heartening that NPCI was quick to respond to the situation and has clarified that the early issues have already been resolved and the remaining are being looked into. While the situation is expected to return to normalcy soon, the lessons cannot be ignored.