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Change in Face Value of Funds

AMCs change the face value of their funds to lower the volatility in NAV, but it doesn't affect the investor in any way

On June 27, 2014 BNP Paribas Mutual Fund changed the face value of its overnight Fund from ₹10 to ₹1,000. The fund's statement shows this as a transfer from the ₹10 FV scheme to ₹1000 FV scheme. Now the number of units in the former scheme is nil and units of FV ₹1000 are credited in the ₹1,000 FV scheme. My question is whether investors need to pay short-term capital gains tax on the capital gains up to the date of this transfer, viz. 27-Jun-2014. Do I have to hold units for one year from the date of change of face value to be eligible for long term capital gains?
- S.R. Jagadish Chandhar

SEBI has made various attempts to reduce risk in liquid funds and other short term debt funds. Funds change face value of their funds to lower the volatility in NAV. Mutual funds are supposed to declare NAV upto 4 decimal places. Now, if face value of the fund is ₹10, rounding off the NAV from five decimals to four might change the percentage return to the investors which will distort the picture. If the face value is ₹1000 and then same exercise is followed, returns remain intact and real.

Case ICase II
FV101010001000
Next Day's NAV10.004010.004071000.400011000.40007
After Round Off (4 decimal places)10.00410.00411000.41000.4001
Percentage Returns0.040.0410.040.04
Annualized Returns14.614.9614.614.6

From the above example it is clear that increasing the face value reduces such distortions. The actual return remains same and it does not affect an investor in any way. So, an AMC does not provide exit window before making such a change.

Your investment is not affected by this change. When face value increases, the number of units reduce and NAV increases, keeping value of your investment intact.

Your account statement must be reflecting the change. You have not gained or lost anything out of this change. You do not need to pay any taxes. Your investment will continue as it is. The date of initial purchase would be same as the date when you actually bought the units. Just track the performance of the fund which is most important and stay invested.



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