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Mutual funds are among the most preferred investment options in India. But when you buy or redeem units, have you ever wondered which day’s NAV or Net Asset Value gets applied to your transaction?
The answer depends on mutual fund cut off time. It’s a simple but crucial concept that many investors overlook. Knowing cut-off time can help you get the right NAV, especially in a volatile market and make smarter investment or redemption decisions.
In this blog, we’ll explain what mutual fund cut-off time means, how it affects NAV applicability, latest SEBI rules and the exact cut-off timings for different types of funds in India. And why knowing the cut-off time helps in better planning of investments and redemptions.
What is Mutual Fund Cut Off Time?
When you invest in a mutual fund, the timing of your transaction plays an important role in determining the price at which your units will be allotted. This is where the mutual fund cut-off time comes in.
Cut-off time refers to the deadline by which your mutual fund transaction, whether it’s a purchase, switch or redemption, must be submitted and the money credited to the mutual fund’s account to get the same day’s Net Asset Value or NAV. If either the order is placed late or the funds are received after the cut-off time, you will get the NAV of the next business day.
For most mutual fund schemes like equity and debt funds, cut-off time for purchase and redemption is 3:00 PM. However, for liquid and overnight funds, the purchase cut-off time is 1:30 PM. Redemption cut-off remains 3:00 PM across all schemes.
Since 1st February 2021, SEBI has made it mandatory that just initiating payment before the cut-off time is not enough. The amount must be credited to mutual fund house’s bank account before cut off to be eligible for that day’s NAV.
Why is Mutual Fund Cut Off Time Important?
If you invest in mutual funds, understanding the cut-off time for mutual fund transactions is more important than you might think. It directly affects NAV you receive whether you are buying new units or redeeming your existing ones. Cut off time helps determine which day’s NAV applies to your transaction making it a essential part of your investment.
Here’s why this matters:
- Accurate NAV Allocation
Timely transactions help ensure your money is allocated based on the correct NAV. This is important in volatile markets, where NAVs can change noticeably from one day to the next.
- Fairness Across Investors
Everyone who invests or redeems within the same window receives the same NAV.
- Better Financial Planning
Whether you’re aiming to enter the market at a specific level or planning a redemption to meet a goal knowing cut off time helps you align your transactions with your financial plans.
- Operational Efficiency for AMCs
Cut-off times also help mutual fund houses streamline the flow of money and units, enabling smoother fund management.
- SEBI Compliant Transactions
SEBI mandates that NAV must be allotted only after AMC receives the funds ensuring transparency and preventing backdated investments.
According to SEBI’s regulation, effective from 1st February 2021, to receive the same day’s NAV, your money must reach the mutual fund’s bank account before the cut-off time, just initiating the payment is not enough. This rule is applicable for all types of mutual funds and all investment amounts.
NAVs are declared after the market closes each trading day. Based on when your transaction and payment are processed, your units will be allotted as per the NAV of the same day or the next.
Here’s a quick reference of cut-off timings:
| Scheme Type | Transaction | Cut-Off Time |
|---|---|---|
|
Liquid & Overnight Funds
|
Purchase/Switch-in
|
1:30 PM
|
|
Redemption/Switch-out
|
3:00 PM
|
|
|
All Other Schemes (Equity/Debt)
|
Purchase/Switch-in |
3:00 PM
|
|
Redemption/Switch-out
|
3:00 PM
|
The time to receive funds after redeeming depends on the type of mutual fund:
- Liquid & Overnight Funds – T+1 day
- Debt Funds – T+2 days
- Equity Funds – T+3 days
- Liquid & Overnight Funds – T+1 day
So, if you redeem on a Monday (T), you can expect your funds by Thursday (T+3) in equity schemes.
SEBI has suggested extending redemption cutoff time for overnight funds to 7:00 PM. This change, if implemented will offer more flexibility and help investors manage liquidity more efficiently. As of now it’s still under consideration.
Understanding NAV in Mutual Funds
We are continuously mentioning the term NAV, but do you know what it really means and how it’s calculated?
NAV stands for Net Asset Value. It tells you the price of one unit of a mutual fund. This price is updated every day after the market closes.
Mutual funds invest in a mix of stocks, bonds and cash. The value of these investments keeps changing, and so does the NAV.
You might ask how NAV is calculated?
There’s a simple formula:
NAV = (Total Assets – Total Liabilities) ÷ Total Number of Units
Let’s take an example:
A mutual fund has:
- Stocks worth ₹500 crore
- Bonds worth ₹300 crore
- Cash worth ₹50 crore
That makes total assets = ₹850 crore
- Now, if it has ₹100 crore in liabilities (debt) and has 3.75 crore units in total, then:
- NAV = (₹850 – ₹100) / 3.75 = ₹750 / 3.75 = ₹200 per unit
- So, the price of 1 unit is ₹200. If you invest in this fund today, you’ll buy units at this rate (excluding any extra fees).
Final Words
Being aware of mutual fund cutoff timings is key to making informed and timely investment. Understanding how these timings work, along with NAV calculation and fund realization process, empowers investors to transact with clarity and precision. Even a small delay in placing your order can impact NAV you receive and ultimately affect your returns. To stay aligned with your investment goals, always refer to your platform’s cutoff schedule and do not hesitate to consult a financial advisor if you’re unsure about the process.
Frequently Asked Questions
What does NAV mean in mutual funds?
NAV or Net Asset Value, is the price of one unit of a mutual fund. It reflects the current market value of the fund’s assets.
What makes the deadline important for ELSS fund transactions?
If you miss the cut-off time, your ELSS order gets processed on the next business day, affecting the NAV you receive and possibly your tax planning.
How to calculate net asset value of mutual fund with bonds?
Include the market value of bonds along with other assets. Add them all, subtract liabilities, and divide by units to find the NAV.
Happy investing and thank you for reading!
Disclaimer:
This website content is only for educational purposes, not investment advice. Before making any investment, it’s important to do your own research and be fully informed. Investing in the stock market includes risks, and you should carefully read the Risk Disclosure documents before proceeding. Please remember that past performance doesn’t guarantee future results, and due to market fluctuations, your investment goals may not always be achieved.
