Mutual Fund Cut Off Time Explained: Meaning, Timings & NAV Impact

Investors can increase their wealth over time while investing in mutual funds. Mutual funds have certain technical aspects, which you need to know to maximise your returns. One of them is the mutual fund cut-off time.

A cut-off time for mutual funds determines whether the mutual funds’ investment or redemption request will be processed on Net Asset Value (NAV) on the same or the next day. Read this blog to learn about the cut-off time for different mutual funds, the new rules of SEBI regarding it and tips to ensure same-day NAV in mutual funds.

What is Mutual Fund Cut-Off Time?

A mutual fund cut-off time is the deadline set by mutual fund houses for processing purchase or redemption requests based on the applicable NAV (Net Asset Value). If a request is made before the designated cut-off time and the funds are realised by the AMC (Asset Management Company), the same day’s NAV is applicable. If the request is made after the cut-off time or funds are not realised in time, the next business day’s NAV will be applied.

This mechanism ensures that all investors are treated fairly, and it prevents any arbitrage based on intra-day market movements. The cut-off timing varies depending on the type of mutual fund—liquid, equity, or hybrid—and whether the request is for purchase or redemption. Understanding cut-off timing helps investors better plan their investments and potentially maximise returns.

Cut Off Time for Different Mutual Fund Transactions

The significance of the cut-off period in mutual funds (MF) has diminished following the introduction of SEBI’s new NAV rules. Mutual fund companies have allocated units starting on February 1, 2021. This means that if you fail to submit your application before the deadline, it will not be processed until the funds’ realisation. The table below displays the cut-off timings for mutual fund transactions, including liquid funds, as well as other categories like debt and hybrid funds:

This MF cut-off time is a time during which you must perform your transaction request to buy or redeem mutual funds units. These requests need to be submitted to get the same day’s NAV. If you make any requests after the cut-off time, the fund house will use the NAV of the next business day. The Securities and Exchange Board of India (SEBI) has established these cut-off timings and implemented them across various fund houses.

It is also crucial to know that weekends and public holidays are considered non-business days for making mutual fund transactions. Any NAV will not be calculated or applied at this time.

SEBI’s New Rule for Mutual Fund Cut-Off Time

SEBI has mandated new regulations for mutual fund cut-off time in India. According to SEBI circular no. SEBI/HO/IMD/DF2/CIR/P/2020/175 of September 17, 2020 and circular no. SEBI/HO/IMD/DF2/CIR/P/2020/253 of December 31, 2020, the new rule of mutual fund cut-off time will be effective from February 1, 2021. The realisation and availability of money in the mutual fund’s bank account before the relevant cut-off times for buy transactions will determine the NAV from the purchase of mutual fund units, regardless of the investment amount.

The introduction of new regulations by SEBI can make mutual fund transactions more uniform and streamlined. These are the new regulations:

• The NAV will be applicable only after the realisation of funds for investments of more than ₹2 lakhs.
• If an investor places transactions before the mutual fund buy cut-off time, they will get NAV on the same day.
• The funds must be cleared from the investor’s bank account for liquid fund transactions to be processed.

These new regulations have been introduced to promote transparency and safeguard investor interests. Funds will be transferred to the bank account of the mutual fund house once purchased mutual fund units are processed at the NAV of the same day. This rule has already been applied in the above table for mutual fund cut-off time.

How does Mutual Fund Cut-off Time work?

Since you have understood the process of cut-off time in a mutual fund, you need to know how these cut-off times function:

• If your transactions are completed before the cut-off time, they are processed as per the same day’s NAV.
• The realisation of funds for amounts above ₹2 lakhs determines the NAV.
• If you place orders after mutual fund closing time, they will be processed on the next business day.
• If you place the order for liquid or overnight funds before 1 pm IST, you will get the same day’s NAV.

How Cut-Off Time for Equity Mutual Fund works?

The cut-off time for equity funds and debt funds is 3 pm IST, and you will get the NAV of the same day if you place the order within this time. As a result, you can take advantage of the day’s market performance.

Importance of Mutual Fund Cut-Off Time

SEBI has stated that mutual fund companies should announce the mutual fund cut-off time before the end of the trading day. If you submit your application after the cut-off time, the fund house will still accept your application, but you will end up getting the NAV of the next working day.

Every mutual fund must adhere to the cut-off timings as per SEBI Mutual Fund Regulations; however, this does not apply to liquid mutual fund plans. The distribution of the mutual fund units will determine the future NAV. The calculation of NAV is determined based on the closing market value of the securities owned in each mutual fund scheme.

The cut-off time helps to build your habit of submitting the request before the mutual fund investment cut-off time. This allows you to receive the same-day NAV which is essential during market fluctuations.

How is the Cut-Off Time Related To NAV?

The cut-off time of mutual funds and the NAV are related to each other. You will receive the NAV on the same day after placing your transaction before the cut-off time. However, if you make transactions after the cut-off time, you will get the next day’s NAV. This can significantly affect your investment.

Application of NAVs Based on Mutual Fund Transactions

The table below includes specific situations about mutual fund transactions with respect to the cut-off time and applicable NAV, irrespective of your investment amount:

Now let us have a look at the application of NAV for inter-scheme switch transactions:

How to get the same day’s NAV in Mutual Funds?

Completing your transaction before the cut-off time in mutual funds can allow you to get the same day’s NAV. Follow these recommendations to find other ways to receive NAV on the same day:

• Using Third-Party Platforms: You can use third-party platforms such as the Bombay Stock Exchange or the National Stock Exchange. This will help you to overcome the problem of delayed NAV allotment. These platforms have an earlier cut-off time of 2:30 pm IST because of operational requirements.

• Investing through Websites or Applications of AMC: Asset Management Companies have direct collaboration with some banks. As a result, you can receive funds immediately in your bank account if you have an account from one of those partnered banks.

• Investing Close to Cut-off Time: You must also try to place an order just before the mutual fund cut-off time. Placing an order half an hour before 3 pm IST will help you to receive funds for the same day.

Which NAV is applicable on switching mutual funds?

You can easily swap your investments in different mutual fund schemes. You just need to apply for this. Here two types of transactions take place, which are ‘switch out’ and ‘switch in’ schemes. Applications of ‘switch in’ schemes are considered the same as applications for purchase. The acquisition deadline will determine the applicable NAV for these.

Similarly, applications for ‘switch out’ schemes are determined as applications for fund redemption. The applicable NAV for these funds will determine the redemption deadline.

Final Thoughts

A mutual fund cut-off time is a time period in which investors have to submit their order. Failing to submit an order after this deadline, can restrict you from receiving NAV on the same working day.

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