Mutual Fund Cut-Off Time: What Is it & How It Affects Transactions?

Mutual funds have been gaining popularity in recent years as a versatile investment vehicle. However, there are different types of mutual funds in the market with their own set of intricacies and technicalities. It is imperative to understand all the different aspects of a mutual fund before going ahead with any investment. One such aspect is the Mutual Fund Cut Off Time which has a direct relation with the Net Asset Value (NAV) of the fund. 

What Is Mutual Fund Cut-Off Time? 

Mutual fund cut-off time is the sole factor which determines the NAV for the fund units during a transaction or redemption, depending on which the investors decide whether to go ahead with the trade. NAV is the value of a mutual fund unit which changes every day. 

The NAV keeps changing along with market fluctuations, hence, the investors might face difficulties understanding the NAV for a particular day. This is why the Securities and Exchange Board of India (SEBI) has introduced a cut off time for mutual funds to decide what NAV will be applicable for investors on a particular day. 

Investors need to submit their trading applications before the pre-determined cut off time to avail the same day’s unit price for sale or purchase. The cut off time is different from trading hours which is the time allotted for selling or purchasing mutual fund units. In addition, it should be noted that the cut off time for different mutual funds may differ. 

How Does Mutual Fund Cut Off Time Work? 

To buy or sell mutual fund units, investors have to submit their applications to the brokerage platforms, AMC websites or their agents. It is important for them to do it before the cut off time to get the same day’s NAV. Placing your order or redeeming your units after the cut-off means you will get the units at the NAV of the next trading day.  

Also Read: Special Allowance in India: What Is It, Taxation & Calculation?

SEBI’s Latest Regulations for Mutual Fund Cut Off Time 

SEBI always tries to tweak the regulations to make this process of mutual fund trading more transparent and easier to comprehend for investors. In light of the COVID-19 pandemic, SEBI has come up with updated guidelines for cut off time and NAV, which were brought to effect from February 01, 2021. 

Here is the updated list of cut off times for various types of mutual funds as circulated by SEBI: 

Mutual Funds Previous Cut Off Time 
Overnight & Liquid Funds 1:30 PM
All other mutual funds 3:00 PM
Redemption of fund units3:00 PM

As per another updated rule, as on September 17, 2020, the NAV applicable to a mutual fund is conditioned to depend on the realisation of funds. This means that only submitting an application will not make NAV applicable; the NAV depends on the time when the fund house or AMC receives your payment. This new rule is applicable to all mutual funds irrespective of their types and the amount received. 

This new rule has made the concept of cut off time less relevant to investors. Now, even if an investor submits the application before the cut off time, there are high chances of not getting the NAV of the same day as it takes time for the fund house to receive the intimation. This is applicable for both lump sum and SIP transactions. 

Hence, if the AMC receives the application before the cut off time, you will get units with the same day’s NAV. Otherwise, your application will roll over to the next trading day.  

Also Read: Stock Market Timings in India: Opening & Closing Times for NSE & BSE

How Does Mutual Fund Cut Off Time Affect Transactions? 

As per SEBI’s guidelines, all fund houses should declare their NAVs at the end of the trading day or before the markets close. Hence, the cut off time is important for the investors, as they have to submit their application before that time to get that day’s NAV. 

If an investor sees that they can benefit from the market fluctuations, estimating that the NAV will be higher than the one they purchased it with, then they have to submit the selling application before the cut off time in order to get the same day’s NAV. 

As discussed before, the cut off time for most mutual funds is 3.00 PM. Hence, you must submit your application and successfully transfer your funds before 3.00 PM to get that day’s NAV. If the application or the fund is transferred late, your application will still be accepted, but you will get the next day’s NAV. This rule is applicable to all mutual funds except liquid funds. 

Relation Between Cut Off Time and NAV 

The calculations of NAV are made upon the realisation of funds. This is applicable to the following types of transactions: 

Inter-scheme Transactions: It is applicable for switching or inter-scheme transactions under the Systematic Transfer Plan, regardless of the amount. 

All Purchase Transactions: All types of transactions, whether they are initial or additional, are considered under this rule. It is applicable for both lump sum and SIP transactions, irrespective of the investment amount. 

Only liquid and overnight funds are exceptions to the application of this guideline. 

Here is a table for NAV applicable and the transaction particulars: 

Transaction Details Applicable NAV 
The purchase application is submitted before the cut off time and at the point of acceptance. The funds for the purchase are available. Same day NAV will be applicable. 
The purchase application is submitted before the cut off time and at the point of acceptance. Funds are available for purchase after 3.00 PM. The following day NAV will be applicable. 
The purchase application is submitted after the cut off time and at the point of acceptance. Funds are available for purchase before 3.00 PM.The following day NAV will be applicable.
The purchase application is submitted after the cut off time and at the point of acceptance. Funds are available for purchase after 3.00 PM.Following day NAV will be applicable.

Final Word 

The introduction of mutual fund cut off time by SEBI has made transactions more streamlined in terms of NAV. Intricate details such as cut off time can really make a big difference in terms of returns generated from a fund. 

Frequently Asked Questions

What is the minimum investment amount for mutual funds?

The minimum amount to be invested in a mutual fund varies from one fund to another, and also the mode of transactions, i.e., SIP or lump sum. For example, some mutual funds let you invest with a minimum of Rs. 500, whereas other funds might allow investing with just Rs. 100.

Is investing in a scheme with a low NAV better?

It is not ideal to consider whether a mutual fund scheme is worth an investment by just looking at its NAV. This is because the NAV keeps changing every trading day and the daily fluctuating prices have little to do with the fund’s overall, long-term performance.

What is switching in mutual funds?

Switching in mutual funds means transferring your units from one mutual fund scheme to another of the same fund house. As this is seen as a transaction, SEBI’s cut-off time and NAV guidelines are applicable for the same.

Animesh Gupta is a Chartered Accountant by profession and a NISM certified Mutual Fund Expert. He has over 4+ years of experience working in the Financial Services Industry. In his role at Wintwealth, he is part of the Credit and Risk team and evaluates the risk of the bonds available on Wintwealth's platform.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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