Understanding mutual fund cut-off time is crucial before investing in these popular financial instruments. Unlike stocks, mutual fund purchases and redemptions are subject to specific timings and valuations set by SEBI (Securities and Exchange Board of India). This article dives into the meaning of mutual fund cut-off time, explores the SEBI regulations surrounding it, and explains how it impacts the Net Asset Value (NAV) you receive for your transactions.
What is mutual fund cut-off time?
The mutual fund cut-off time in India is based on the Indian Standard Time (IST) and follows the working days of the Indian stock market. The cut-off time is different for different types of mutual fund schemes and modes of payment.
Cut-off timings are the deadlines for placing orders for buying or selling mutual fund units on a given day. Depending on the type of scheme and mode of payment, there are different cut-off timings for different transactions. If you place your order before the cut-off time, you will get the NAV of the same day. If you place your order after the cut-off time, you will get the NAV of the next business day.
To secure the day's NAV for your mutual fund purchase, you will need to initiate the transaction by 3:00 PM. This deadline applies to most mutual fund schemes and is set by AMCs (Asset Management Companies) or RTAs (Registrar and Transfer Agents) in accordance with SEBI regulations. Transactions placed after 3:00 PM will be processed at the next business day's NAV.
Cut-off time for mutual fund transactions
SEBI, India's regulatory authority, has introduced a new rule on applicable NAV, effective from February 1, 2021, impacting mutual fund cut-off times. The table below outlines the revised cut-off timings for various mutual fund schemes based on fund realisation.
Type of schemes | Cut-off time in IST |
Liquid Funds and Overnight Funds (Subscription incl. switch-ins) | 1:30 PM |
Liquid Funds and Overnight Funds (Redemption incl. switch-outs) | 3:00 PM |
All other schemes (Subscription incl. switch-ins) | 3:00 PM |
All other schemes (Redemption incl. switch-outs) | 3:00 PM |
The updated cut-off times reflect SEBI's emphasis on the realisation of funds, impacting transaction timings for mutual fund investments and redemptions up to Rs. 2 lakh.
SEBI’s new rules for mutual fund cut-off
SEBI, the market regulator, has introduced new rules for mutual fund cut-off time, effective from 1stFebruary, 2021.
According to the new rules, the cut-off time is no longer relevant for the purchase of mutual fund units, except for liquid and overnight funds. Instead, the NAV applicable for the purchase of mutual fund units will depend on the realization of funds, i.e., when the fund house receives the money from the investor.
This means that even if you place your order before the cut-off time, you will not get the same day’s NAV unless the fund house receives the money before the cut-off time.
This rule is applicable for alltypes of mutual fund schemes, irrespective of the amount of investment. The new rule aims to bring uniformity and transparency in the mutual fund industry and protect the interests of the investors.
How does mutual fund cut-off time work?
Here are the general rules for some of the common types of schemes:
- Liquid and overnight funds: These are low-risk debt funds that invest in very short-term securities. The cut-off time for purchase of these funds is 1:30 p.m., and for redemptionis 3 p.m. If you place your order before 1:30 p.m., you will get the previous day’s NAV. If you place your order after 1:30 p.m., you will get the same day’s NAV.
- Equity and debt funds (except liquid and overnight funds): These are funds that invest in stocks, bonds, or a mix of both. The cut-off time forpurchase of these funds is 3:00 p.m. If you place your order before 3:00 p.m., you will get the same day’s NAV. If you place your order after 3:00 p.m., you will get the next day’s NAV.
- ELSS tax-saving funds: These are equity funds that offer tax benefits under Section 80C of the Income Tax Act. The cut-off time for purchase and redemption of these funds is the same as equity and debt funds, i.e., 3:00 p.m.
Why is mutual fund cut off so important?
According to the regulations, AMCsmust disclose the NAVs of all schemes at the market's close, essentially marking the end of the trading day. Consequently, investors attach great importance to submission deadlines. To secure the NAV for a specific business day, investments must be made before the cut-off time.
Most mutual fund schemes set a 3 PM deadline for buy transactions, excluding liquid fund schemes. If you invest by 3:00 PM, you'll receive the NAV for that day. Submitting applications after the deadline still allows acceptance by the AMC. However, in such cases, investors receive the NAV for the following business day. These cut-off time regulations also extend to redemptions.
SEBI Mutual Fund regulations mandate all mutual funds to adhere to the cut-off period, except liquid fund schemes. These guidelines specify the utilisation of future NAV to determine the distribution of mutual fund units, calculated based on the closing market value of scheme-owned securities, which is then declared at day's end.
What is NAV in mutual funds?
NAV stands for Net Asset Value. It is the per-unit or per-share value of a mutual fund scheme. It is calculated by subtracting the mutual fund’s liabilities and expenses from its total asset value and dividing the result by the number of outstanding units.
NAV is an indicator of the fund’s performanceand reflects the market value of its underlying assets. NAV changes every day based on the movement of the market prices of the assets in the fund’s portfolio.
Relationship between cut-off time and NAV
The relationship between cut-off time and NAV is that the cut-off time determines which NAV will be applicable for your mutual fund transaction.
If you place your order before the cut-off time, you will get the NAV of the same day or the previous day, depending on the type of fund.
If you place your order after the cut-off time, you will get the NAV of the next business day. This means that the cut-off time can affect the cost and returns of your mutual fund investment.
Applicable NAV for mutual funds transactions
The applicable NAV for mutual funds transactions covers all purchase transactions except for Liquid and Overnight Funds, including Switch-In transactions across all mutual fund schemes. The following rules determine the NAV, regardless of the investment amount:
- If the purchase transaction application is received by 3:00 PM on a business day, with funds available for utilisation by the same time, the NAV of that day applies.
- If the transaction is received by 3:00 PM, but funds are available for utilisation after that time on the same day, or on a subsequent business day, the NAV of the subsequent business day applies.
- For transactions received after 3:00 PM on a business day, with funds available for utilisation by the same time, the NAV of the following business day applies.
- If the transaction is received after 3:00 PM, with funds available for utilisation after that time on the same day or the next business day, the NAV of the subsequent business day, when funds are realised before 3:00 PM, applies.
Importance of cut-off time for mutual funds on transactions
The cut-off time for mutual funds is important for investors as it can affect the cost and returns of their investments. By placing the order before the cut-off time, investors can get the benefit of the NAV of the same day or the previous day, depending on the type of fund. This can help them to buy low and sell high and maximise their profits.
Even with the new SEBI rules the cut-off time is relevant for the purchase of mutual fund units since the NAV will depend on the realization of funds. Therefore, investors need to ensure that they transfer the money to the fund house as soon as possible after placing the order, to get the best possible NAV.
Conclusion
Understanding the mutual fund cut-off time is essential for navigating your investments effectively. By knowing the deadline (typically 3:00 PM), you can ensure you receive the desired NAV for your purchase or redemption. Remember, orders after the cut-off time are processed at the next business day's NAV, which can fluctuate. To maintain control and potentially benefit from favorable NAVs, submit your transactions well before the cut-off. Make sure to consult your investment platform or advisor for any specific variations in their cut-off times or cancellation policies.
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