Mutual Fund Cutoff Time: Benefits, Relation Between Cutoff Time and NAV and More

Mutual funds have gained immense popularity as a convenient and accessible investment option for individuals. They offer a diversified portfolio managed by professionals, making them an attractive choice for both seasoned investors and beginners. However, when investing in them, it is crucial to understand various aspects that affect the buying and selling of fund units, including the concept of cut-off time.

Mutual Fund Cut-off Times

Mutual fund cut-off time refers to the deadline set by mutual fund companies for accepting investment applications or redemption requests from investors. It is the designated time of the business day that determines the price at which the transactions will be processed. The cut-off time acts as a dividing line between different valuation points of the fund's net asset value (NAV).

To help investors navigate mutual funds' changing NAV due to market fluctuations, the Securities and Exchange Board of India (SEBI) has implemented a cut-off time system. This ensures that investors know which NAV will be applicable for their transactions on a specific day.

Cut-off Time for Mutual Funds

The details below will help you understand the determination of the applicability of NAV for the subscription and redemption of different types of mutual funds:

Liquid and Overnight Funds

• Subscription, including switch-ins from other schemes: 1:30 pm
• Redemption, including switch-ins from other schemes: 3:00 pm

All other schemes other than liquid funds and overnight funds

• Subscription, including switch-ins from other schemes: 3:00 pm
• Redemption, including switch-ins from other schemes: 3:00 pm

Also, note that the applicability of the NAV in a mutual fund is contingent upon the realization of funds. This implies that merely submitting an application does not guarantee the NAV will be applicable; instead, the NAV depends on when the fund house or asset management company (AMC) receives your payment. This new rule applies to all mutual funds, regardless of their types or the amount of funds received.

The recent revision in the cut-off time for mutual fund investments has diminished its significance for investors. Despite submitting an application before the cut-off time, there is a higher probability of not receiving the same day's NAV due to the time it takes for the fund house to receive the intimation. This rule applies to lump sum investments and systematic investment plan (SIP) transactions.

Consequently, if the AMC receives the investment application before the cut-off time, investors will receive units at the NAV of the current day. However, if the application reaches the AMC after the cut-off time, it will be processed on the next trading day.

Redemption Processing Time

The redemption processing time for mutual funds in India varies by fund type and submission timing. For liquid funds, proceeds are typically credited within one working day. Debt funds take about two working days, while equity funds require three working days. The applicable NAV is determined by the cut-off time of 3 pm; requests submitted before this time are processed using the same day's NAV; otherwise, the next business day's NAV applies.

Equity Linked Savings Scheme (ELSS) funds have a mandatory 3-year lock-in and cannot be redeemed before maturity. Some platforms offer instant redemption for select liquid schemes, enabling near-immediate credit of up to ₹50,000 per day. Redemption proceeds are credited to the investor’s registered bank account, subject to applicable exit loads, taxes, and stamp duty charges.

Processing timelines may vary slightly across fund houses and platforms, but SEBI mandates standardised settlement cycles to ensure investor protection and operational consistency.

What is NAV in Mutual Funds?

NAV in mutual funds is the per-unit price of a fund that tells investors the value of one unit of the scheme on a given day. It is calculated by taking the total market value of all the assets a fund holds, such as stocks, bonds, and cash, subtracting liabilities or expenses, and then dividing this by the total number of outstanding units.

The formula is:

NAV = (Total Assets – Total Liabilities) ÷ Total Outstanding Units

NAV is updated daily, usually at the end of the trading day, as the prices of securities in the fund’s portfolio change. For investors, NAV works like a price tag that helps them know how much they are paying to buy a unit or how much they will receive if they redeem it. Unlike stock prices, which change throughout the day, NAV is fixed once daily after market close.

Importantly, NAV does not determine whether a fund is expensive or cheap; it simply reflects the current value of each unit. The real measure of a mutual fund’s performance lies in how its NAV grows over time, which shows how effectively the fund’s investments are managed and how much wealth it creates for investors.

Impact of Cut-off Time for Mutual Funds on Transactions

In accordance with SEBI's guidelines, mutual fund houses are required to declare their NAVs at the end of the trading day or prior to market closure. As a result, the cut-off time holds significance for investors as they must submit their applications before this designated time to obtain the NAV for that particular day.

When investors anticipate potential benefits from market fluctuations and expect the NAV to be higher than their purchase price, it becomes crucial for them to submit their selling applications prior to the cut-off time to secure the NAV of the same day.

As previously mentioned, the typical cut-off time for most mutual funds is 3:00 PM. Therefore, submitting your application and successfully transferring your funds before this deadline is imperative to ensure you receive the NAV for that specific day. If the application or fund transfer is delayed beyond the cut-off time, your application will still be accepted, but you will receive the NAV of the next business day. It is important to note that this rule applies to all mutual funds except liquid funds.

Relationship Between Cut-off Time and NAV

NAV of mutual funds is calculated based on the realization of funds. This calculation methodology applies to the following types of transactions:

• Inter-scheme Transactions: The rule regarding NAV calculation upon fund realization is applicable to switching or inter-scheme transactions conducted under the Systematic Transfer Plan (STP), regardless of the transaction amount.

• All Purchase Transactions: This guideline encompasses all purchase transactions, including initial and additional investments. It applies to both lump sum investments and those made via a SIP, regardless of the investment amount.

Note that only overnight and liquid funds are exempt from this guideline.

Benefits of the New Cut-off Time

• Improved Investor Convenience: The extended mutual fund investment and purchase deadlines offer investors ample time to make well-informed decisions and place orders. This eliminates the need to rush before the deadline, minimizing the likelihood of errors and mistakes.

• Standardized Deadlines: The new guidelines have standardized the investment deadlines for all mutual fund schemes. This simplifies the process and lets investors easily track the cutoff time.

• Same-Day Net Asset Value: The revised deadlines ensure that investors receive the NAV on the same day for their investments. This can significantly impact their returns, particularly for liquid funds where even a slight variation in NAV can make a notable difference.

• Enhanced Fund Management: The revised deadlines enable AMCs to manage their funds more efficiently. With additional time to process orders and allocate assets, the chances of errors and delays are reduced, leading to improved fund management.

To Sum Up

The mutual fund cut-off time is crucial in determining the price at which your investment or redemption request is processed. By adhering to the cut-off time, you can ensure that you receive the NAV of the desired day. Remember to check the cut-off time of the fund in which you wish to invest, as it may vary based on the type of fund and the investment method. Being aware of this timing can help you make informed investment decisions and manage your mutual fund portfolio.