Swing Pricing in Mutual Funds: Indian Evidence

Abstract

To protect investors' interests, India's capital market regulator, the Securities and Exchange Board of India (SEBI), announced on September 29, 2021, that open-ended debt mutual fund schemes would have a swing pricing structure. This paradigm does not apply to overnight funds, GILT funds, or Gilt with a 10-year maturity. Swing pricing enables an open-ended fund's net asset value (NAV) to adjust in response to significant redemptions in periods of market distress, thereby lowering the fund's liquidity risk. Swing pricing will be used exclusively in the event of scheme outflows, while a hybrid model with a partial swing will be used in normal times. Volatile times would entail a mandatory full swing. The swing factor will be between 1 and 2 percent, depending on the underlying credit and duration risk, and will take effect upon the regulator's declaration of market dislocation.