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What is the Mutual fund cut-off time and why is it important?

Mutual funds are a pool of funds that invest in different asset classes. Since a single fund can have multiple underlying securities, the NAV determines the fund's value. NAV (Net Asset Value) is the net asset value (total assets reduced by liabilities) divided by the total number of units outstanding. This can be high or low, depending on the movement in the underlying securities. The volatility of the underlying securities impacts the NAV, and hence there is constant fluctuation. So, what will be the NAV for Investor A, who invests in the morning and Investor B, who invests in the night of the same business day? Two different NAVs? No! The closing NAV will be applicable as per the MF cut-off time.

What is the Mutual Fund cut-off time?

Stock markets have a closing bell, a cut-off time that signifies the end of the trading day and an issue of reports for traders to know the gainers and losers of the day. Similarly, a mutual fund also has a cut-off time. So, what does a cut-off time mean? An investor has to visit the Asset Management Companies offices or complete any other mode of investment before the cut-off time of mutual fund to take advantage of the​same-day NAV . So a mutual fund cut-off time is when the NAV is frozen for the day and applied to transactions. So as an investor, if you want to make the most of the NAV of the present day you have to submit an application to buy or sell before the cut-off time.

Cut-Off Time for Mutual Fund Transactions


Mutual Fund Scheme TypeCut-Off Time Subscription (including switch-in from other schemes)Cut-Off Time Redemption (including switch-in from other schemes)
Liquid Mutual Funds & Overnight Mutual Funds1.30 p.m3.00 p.m
All other schemes (excluding those which invest in international markets)3.00 p.m3.00 p.m

Since the Mutual Fund NAV cut-off time decides the NAV for a transaction it was a very vital aspect of investing. However, SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2020/175 (September 17th, 2020), and SEBI/HO/IMD/DF2/CIR/P/2020/253 (December 31st, 2020) implemented on February 1st, 2021 brought a significant change in the applicability of NAV across various schemes. Now the NAV will apply upon the realisation of funds. Hence, only when the application and realisation are before the cut-off time, the same-day NAV will apply, the only exception being liquid and overnight funds (where previous day NAV would be applicable if application and funds realised before 1.30 p.m). This will be applicable to the following transactions:

  • All purchase transactions:

    This will be applicable to all the transactions, including the first-time purchase and additional purchase of units. This applies to both Systematic Investment Plans (SIP) and lump sum investments.

  • Inter-scheme switching of Investments:​

    This change will also apply to switch transactions including the Systematic Transfer Plan (STP).

Importance of Mutual Fund Cut-off Time India

The NAV of a fund determines the allotment of units to an investor. So, say you want to invest Rs. 10000 in a fund with the following NAV

​DateNAVUnits Allotted
1.05.2390111.11
2.05.2311090.90

So, if you had a choice which day would you invest? On the 1st of May right? Because you will be allotted more units. Now the only prerequisite to this is both application and fund realisation should be within cut-off timing. To avail the NAV of a particular day, you must invest before 3.00 p.m for all schemes other than liquid/overnight funds (where previous day NAV would be applicable if invested before 1.30 p.m). Similarly, for redemption same day NAV will be applied for all schemes if applied within cut-off time.

So, if you submit the application after the cut-off time, the mutual fund will accept your application and apply the NAV the next day, except in case of liquid / overnight funds. This is why the cut-off time in mutual funds is so important to investors.

Additional Read: How to Analyze Mutual Fund? ?

Applicable NAV for Mutual Funds Transactions

The following table will clearly display the applicable NAV for all purchase transactions (including Switch-In transactions) for all funds except liquid/ overnight funds.

Time of receipt of the transaction at official points of acceptance Time when the funds are available for utilisation (On the same business day)Applicable NAV
Upto 3.00 p.mBy 3.00 p.mNAV of the same Business day will be applicable
Upto 3.00 p.m After 3.00 p.mNAV of the subsequent Business day on which the funds are available for utilisation before 3.00 p.m will be applicable
After 3.00 p.m By 3.00 p.mNAV of the subsequent Business day will be applicable
After 3.00 p.mAfter 3.00 p.mNAV of the subsequent Business day on which the funds are available for utilisation before 3.00 p.m will be applicable

Note: For Liquid and Overnight funds, please read cut-off time as 1.30 PM and accordingly previous day NAV will be applied if time of receipt of application and funds realisation is before 1.30 PM.

Let us understand with a simple example:

Type of InvestmentApplication madeFunds received NAV Applicable
​​Lumpsum amount of Rs. 50000 (other than Liquid and Overnight funds)​
Before 3.00 pm on the 10th of May /td> Before 3.00 pm on the 10th of May 10.05.2023
After 3.00 pm on the 10th of MayBefore 3.00 pm on the 10th of May11.05.2023
Before 3.00 pm on the 10th of MayAfter 3.00 pm on the 10th of May11.05.2023
After 3.00 pm on the 10th of MayAfter 3.00 pm on the 12th of May15.05.2023(Next business day due to the weekend)

Similarly, if the mode of investment is SIP, as per the previous rule, if the investor has opted for SIP to be on the 10th, the units would be allocated on the 10th. However, with the new rule, the units will be allotted on the said date only if the payment hits the Mutual Fund’s bank account before 3.00 p.m on that day.

For purchases in Liquid & Overnight, t-1 NAV would be allotted if the transaction is reported within the cut-off and credit is received within the cut-off time (this does not include holidays and weekends).

The following table depicts the applicable NAV for Inter-Scheme Switch Transaction

Transaction TypeTime of receipt of the transaction at official points of acceptance Time when the funds are available for utilisation (On the same business day)Applicable NAV
Switch OutUpto 3.00 p.mN/ASame Business Day
Switch InN/ABy 3.00 p.m.Business day on which the funds are received in the switch-in scheme before cut off. This is in consensus with the redemption payout of the Switch Out scheme.

Conclusion

Knowing about the cut-off time in mutual funds can help an investor make the most of the fluctuating market, an investor can purchase low and sell high. The new SEBI rule mandates that the NAV will be applicable when the funds are received in the Mutual Fund Bank account by the cut-off time and this would be applicable for all purchases across all schemes.

Additional Read: How to read Mutual Fund Statements? ?​

Frequently Asked Questions (FAQs)

  1. What is the cut-off time for mutual funds?

    Cut-off time in mutual funds is applicable for determining the NAV for purchase and redemption transactions of mutual funds which are as follows:

    ​Scheme TypeType of TransactionCut-off Time
    Liquid/ Overnight FundsPurchase including switch-ins from other schemes1.30 PM
    Redemption including switch-outs3.00 PM
    International Equity FundsPurchase including switch-ins from other schemes11.00 AM
    Redemption including switch-outs11.00 AM
    All other schemesPurchase including switch-ins from other schemes3.00 PM
    Redemption including switch-outs3.00 PM
    ​

  2. What is the cut-off time for SIP?

    Cut-Off times are applicable to all transactions; hence, SIPs are no exception. An investor decides to invest a certain sum periodically through a SIP, usually on a particular date. Previously, if the SIP was marked for the 15th of the month, the units would be allocated on the closing NAV of the 15th. However, with the new rule by SEBI, applicable from February 1st, 2021, the closing NAV will be taken on a said date only if the funds are received by the cut-off time on the said date. So if the SIP date is the 15th and the funds are received by 3 PM on the 15th, the closing NAV of the 15th will be taken.

  3. At what time is NAV calculated?

    The NAV of the fund is constantly fluctuating as the underlying securities are volatile. Hence the NAV is calculated at the day-end of trading and is called the closing NAV.

  4. Can I redeem the mutual fund after 3 PM?

    Mutual funds can be transacted at any time. You can purchase or redeem the mutual funds at any time. However, if you redeem the mutual fund after 3 PM the NAV applicable will be of the next business day. This means that, if you redeem the mutual fund after 3 PM on a Friday, the NAV of Monday will apply provided it is a working day.

  5. Which NAV is applicable on units allotted on reinvestment of dividends?

    The ex-dividend NAV will be applicable for the allotment of units upon reinvestment of dividends.

  6. What is the NAV for the allotment of units of mutual funds through NFO?

    In the case of a New Fund Offering (NFO) subscription, the units are allotted as on the allotment date provided the applications are received before NFO closure date and funds are received in the mutual fund collection account prior to the allotment of units.

In case of transactions of a switch made from an existing scheme to an NFO, the requests received for switch-out before the cut-off time applicable to source schemes will be processed and the units will be allotted on the allotment date.

NFO units are allotted at the face value of the units as mentioned in Scheme Information Document.

​

Disclaimer:
This is an investor education and awareness initiative by Nippon India Mutual Fund.
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

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