Mutual Fund investments are driven by fluctuations in the stock market. Investors had to submit applications at offices of Asset Management Companies (AMCs) or their Registrar and Transfer Agents (RTAs). You had to ensure the application was submitted before the cut-off time. Only then you could redeem at a high market or for purchase at a low market. By submitting the application before cut-off time only you could get the same-day NAV (Net Asset Value).
However, as per new NAV rules by SEBI, the cut-off time is now less relevant. Therefore, from February 1, 2021, the mutual fund houses will only allot units after the realization of funds. This rule is applicable for investment (purchase) purposes in equity-oriented and debt Mutual Funds. So, even if you submit the application before the cut-off time the allotment will be upon realization of funds. You can simply understand this as NAV applicable on your transaction will depend on when the fund house receives your money.
Earlier, this rule of allotment of MF units was applicable only on investments of Rs 2 lakh or above. For investments of smaller amounts allotment was on the same day NAV upon submitting the applications before cut-off time. However, the provision of NAV applicability remains unchanged for liquid and overnight funds.
Securities and Exchange Board of India (SEBI) made the declaration regarding this change as per a circular dated September 17, 2020. According to the circular SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020, this change was to be implemented from January 1, 2021. But later it was pushed to February 1, 2021.
Mutual Fund Cut-Off Time in India
The mutual fund cut-off time in India is now based on the realization of funds. SEBI has declared this change under the New Rule on Applicable NAV. The amended rule is effective from February 1, 2021.
The cut-off timings for mutual fund transactions up to Rs. 2 lakh applicable earlier were as given in the following table:
|Type of Schemes||Cut-off timings|
|Liquid Funds||1:30 PM|
|Overnight Funds||1:30 PM|
|All other schemes||3:00 PM|
SEBI New Rule for Mutual Fund Cut Off
SEBI in its circular no. SEBI/HO/IMD/DF2/CIR/P/2020/175 dated September 17, 2020, announced the change in cut-off timings. The rule has been brought to effect from February 1, 2021, in accordance with circular no. SEBI/HO/IMD/DF2/CIR/P/2020/253 dated December 31, 2020.
According to the New Rule, the applicable NAV in respect of the purchase of units of a mutual fund scheme is subject to the realization of funds. It means the availability of funds in the bank account of the mutual fund house before purchase transactions. The rule is applicable to all investments irrespective of the amount of investment. It covers all mutual fund schemes except Liquid funds and Overnight Funds.
Why is Mutual Fund Cut Off So Important?
According to the SEBI Mutual Fund Regulations, fund houses declare the NAVs of all mutual fund schemes after the markets close. In simple terms, they declare the NAV at the end of the trading day. This makes the cut-off time for the submission of applications so important for investors. In order to get the end-of-day NAV of a particular business day, you must invest before the cut-off time.
The cut-off time for most mutual fund schemes is 3:00 PM for purchase transactions. This timing, however, is not applicable to liquid fund schemes. This means if you invest till 3:00 PM you will get NAV applicable for the day. In case you submit the application after the cut-off time your application will be accepted by the mutual fund company. But in such cases, you will get the NAV of the next business day. The cut-off time rules apply similarly for redemptions too.
The cut-off time is applicable on all mutual funds as per SEBI Mutual Fund Regulations. It does not apply to liquid fund schemes. According to the guidelines allotment of mutual fund units is based on prospective NAV. The NAV is based on the closing market value of the securities held in the respective schemes. It is declared at the end of the day.
NAV Based on Realization of Funds
SEBI has revised the rule for the allotment of mutual fund units. The new rule for NAV is based on the realization of funds. It is applicable for all purchase transactions from February 1, 2021.
The calculation of NAV based on Realization of Funds is applicable on the following transactions:
All purchase transactions- The rule is applicable on all transactions including initial purchase or additional purchase of units. It also applies to both lump-sum investments and Systematic Investment Plan (SIP). Unlike earlier, the rule does not apply to the amount of investment.
Purchase of units through Inter-Scheme switching of investments- The rule also applies to switch transactions under Systematic Transfer Plan (STP) irrespective of the amount of investment.
Applicable NAV for Mutual Funds Transactions
The Applicable NAV for Mutual Funds Transactions includes all purchase transactions other than Liquid and Overnight Funds. It also includes Switch-In transactions and other transactions under all mutual fund schemes. The NAV applies as per the following rules irrespective of the amount of investment:
|Time of receipt of Transaction and Money||Applicable NAV|
|The purchase transaction application is received up to the cut-off time of 3.00 PM. It is submitted on a business day at the official point(s) of acceptance. The funds for subscription/purchase amount are available for utilization up to 3.00 PM on the same Business Day.||NAV of the same Business Day shall be applicable|
|The transaction is received up to the cut-off time of 3.00 PM. It is submitted on a business day at the official point(s) of acceptance. Funds for the purchase of units are available for utilization after 3.00 PM on that Business Day. The funds are available on a subsequent Business Day.||NAV of the subsequent Business Day when the funds are available for utilization prior to 3.00 PM shall be applicable.|
|The transaction is received AFTER the cut-off time of 3.00 PM. It is submitted on a business day at the official point(s) of acceptance. Funds for the entire amount of subscription are available for utilization up to 3.00 PM on the same Business Day.||NAV of following Business Day shall be applicable.|
|The transaction application is received after the cut-off time of 3.00 PM. It is submitted on a business day at the official point(s) of acceptance. Funds for the entire amount of subscription are available for utilization after 3.00 PM on the same Business Day or subsequent Business Day.||NAV of subsequent Business Day on which fund realized prior to 3.00 PM shall be applicable|
An investor can opt for Inter-scheme switching of investments by submitting an application for the same. It is valid for processing on the earliest day. You can understand this to be the Business Day for both the ‘Switch out’ and ‘Switch in’ schemes. ‘Switch in’ applications shall be treated as purchase applications. The Applicable NAV for these will be based on the cut-off time for purchase. Applications for ‘Switch out’ shall be treated as redemption applications. The Applicable NAV for them will be based on the cut-off time for redemption.
Transaction wise NAV applicability (applicable from 01-Feb-2021)
|Type of Transaction||Transaction Application received before cut-off timing||Money Received by Mutual Fund before cut-off timing||Applicable NAV|
|Purchase / SIP Installment||Y||Y||Same Business Day|
|N||Y||Next business day, whenever Time Stamping is done before the cut-off time|
|Y||N||Next business day on which money received by the fund before the cut-off time|
|Inter scheme Switch Transaction|
|Transaction Type||The transaction received before cut-off timing||Money Received by Mutual Fund before cut-off timing||Applicable NAV|
|Switch out||Y||N/A||Same Business Day|
|Switch in||N/A||Y||Business Day on which funds are received in Switch-in scheme before the cut-off time. It is in line with the redemption payout of the Switch Out scheme.|
Frequently Asked Questions
Ex-dividend NAV is applicable on allotment of units upon reinvestment of dividend.
The units for NFO subscriptions are allotted with respect to all valid applications received on the NFO closure date. It considers all applications for which the funds have been realized till the close of business hours on that date. Allotment of units will be done against all applications for which the funds have been submitted to the mutual fund collection account. In case of switch transactions, you can apply to switch from an existing scheme into an NFO scheme. All Switch-Out requests received & time stamped before the applicable cut-off timing of the source schemes are processed. The units in the NFO scheme are allotted on the Allotment date are allotted at face value as specified in the Scheme Information Document.