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CS Professional · IFSCA - Regulations, Listing and Compliances · Fund Management Services

A GIFT IFSC Fund Management Entity discovers that an error in valuing an unlisted holding overstated a scheme's NAV for two weeks. Some investors redeemed during this period at the inflated NAV, and others subscribed at it. What is the appropriate response?

The entity should correct the NAV, identify the investors and the scheme affected, restore their position from its own resources under its error-handling policy, and report the matter as required. Leaving transactions as they are, or charging the scheme, would make innocent investors bear the cost of the manager's valuation error.

  1. ADo nothing, since all transactions were completed at the NAV then published
  2. BCorrect the NAV, identify the affected investors and the scheme, make good the loss from the manager's own resources as per its policy, and report as requiredCorrect
  3. CCharge the correction cost to the scheme so that all remaining investors share it equally
  4. DRecalculate only for investors who complain in writing

Explanation

An erroneous NAV means redeeming investors were overpaid at the cost of the remaining holders, and subscribers paid too much. The responsible manager must correct the error, restore the position of the affected parties and report it under its error-handling policy. Passing the cost to the scheme would penalise investors who did nothing wrong.

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