What is the cut-off timing for mutual funds?
The new rule regarding the applicable Net Asset Value (NAV) for mutual fund transactions, which occurred on February 1, 2021, requires that the NAV for all purchase transactions be determined based on the realization of funds. This rule was already in place for liquid and overnight funds and has now been extended to all mutual fund schemes. The key change is that the funds must be available in the mutual fund’s bank account before the cut-off time for the NAV to be applicable for that business day.
The value of a mutual fund, known as its Net Asset Value (NAV), changes daily. The NAV at which you buy or sell mutual fund units depends on when you submit your transaction. This is determined by the cut-off time and the deadline for submitting your investment or redemption request.
| Type of Scheme | Transaction Type | Cut-off Time | Applicable NAV |
| Liquid Funds & Overnight Funds |
Subscription (including Switch-in) |
1:30 p.m. | NAV of the same day if funds are available before cut-off; otherwise, the next business day’s NAV. |
| Redemption (including Switch-out) |
3:00 p.m. | NAV of the same day if received before cut-off; otherwise, the next business day’s NAV. |
|
| Other Mutual Funds (Equity/Debt, etc.) |
Subscription (including Switch-in) |
3:00 p.m. | NAV of the same day if funds are available before 3:00 p.m. If not, NAV of next business day. |
| Redemption (including Switch-out) |
3:00 p.m. | NAV of the same day if received before cut-off, otherwise next business day’s NAV. |
|
| Inter-scheme Switching | Switch-out | Before 3:00 p.m. |
Same Business Day NAV for Switch-out transactions. |
| Switch-in | After 3:00 p.m. |
NAV of the Business Day on which the funds are received in the “Switch-in” scheme before 3:00 p.m. |
|
| SIP Transactions |
SIP Installment | Before 3:00 p.m. |
NAV of the same business day if funds are received before cut-off time. Otherwise, NAV of the next business day. |
| Reinvestment of Dividends | Reinvestment of Dividends | N/A | NAV will be at ex-dividend NAV. |
| NFO (New Fund Offers) |
Purchase & Switch-in |
Before close of NFO date |
Units allotted at the closing date’s NAV, only if funds are credited before the allotment. |
Key Points:
- Cut-off time refers to the specific deadline for transactions to be processed for the same day’s NAV.
- NAV (Net Asset Value) determines the value of your mutual fund units. If the transaction is completed before the cut-off time, the NAV of that day applies. If it’s after the cut-off, the next business day’s NAV applies.
- For SIP or lump sum transactions, if the funds are received after the cut-off, the NAV of the next business day will apply.
Examples
- Lump Sum Purchase: If a ₹50,000 transaction is made on Thursday, February 11, 2021, before the cut-off time of 3:00 p.m., but the funds arrive after the cut-off time, the NAV for Friday, February 12, 2021, will be applicable. If funds arrive after 3:00 p.m. on Friday, the NAV for Monday, February 15, 2021 (due to the weekend) will apply.
- SIP Transactions: If an SIP payment is scheduled for the 10th of each month, the NAV for that date is applicable only if the funds are credited to the mutual fund’s account before 3:00 p.m. on the 10th. Otherwise, the NAV for the next business day will be applied.
Inter-Scheme Switching
For inter-scheme switches:
- Switch-out transactions: Treated as redemptions and processed at the same day’s NAV if received before the cut-off time.
- Switch-in transactions: Treated as purchase transactions and processed based on the fund realization, applying the NAV of the business day when funds are received before the cut-off time.
NFO and Dividend Reinvestment
- NFO Subscriptions: Units are allotted based on the realization of funds before the NFO closure date.
- Dividend Reinvestment: Units are allotted at the ex-dividend NAV.
- The new rule emphasizes that mutual fund transactions (whether through physical or online platforms) will be processed only when funds are realized, ensuring transparency and accuracy in the NAV allocation. This reduces the possibility of discrepancies and promotes better investment planning.
Our View: While knowing these cut-off timings is good, don’t stress too much about them. If you’re investing a large amount, it might make a difference. But for smaller amounts, a day or two here or there usually won’t affect your investment in the long run.
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