Do you know all types of mutual funds may be equity funds, debt funds or hybrid funds come with an official cut-off time on their investment and redemption? Cut-off time does not restrict your selling or purchases of your mutual fund units. Cut-off time decides at what NAV (net asset value) you can purchase or sell the units of the mutual fund. In simple words, NAV allotment depends upon the time you make the application.
Note that SEBI (Securities and Exchange Board of India) has introduced cut-off timings on mutual fund investment and redemption across all fund houses to bring uniformity in operational processes. You must make your mutual fund transactions either digitally or through official acceptance points before the cut-off time to get the NAV according to the SEBI prescribed guidelines.
What is the cut-off timing in mutual funds?
As per SEBI regulations, fund houses announce the NAVs of all the mutual fund schemes once the market closes. In other words, they declare NAV when the trading day ends. Thus, owing for this reason your application submission before the cut-off time is very important for you to avail the end of the day NAV.
Cut-off timing for most mutual funds is 3 PM for the purchase transactions. It means if you invest in a mutual fund until 3 PM, you will get the applicable NAV for the day. But if you invest in a mutual fund after the cut-off time, while your application will be accepted by the fund house, the NAV you will receive will be for the next business day. Like investments, this cut-off time rule is applicable for redemptions too.
Remember, the 3 PM cut-off timing is not applicable in the case of liquid and overnight funds. The cut-off timing for liquid and overnight funds is 1.30 PM. This means the mutual fund house must receive your funds before 1.30 PM to process your application on the same day.
Why is cut-off timing in mutual funds so important?
As mentioned above, mutual fund NAV is declared after the market closes. Thus, if you are looking to invest in a mutual fund unit at the day’s NAV, you must place the purchase request and transfer the money before the cut-off timing to get the day’s NAV. On the contrary, if you want to gain the benefit of mutual fund investment from a market spike then ensure to sell the investment when the closing NAV is higher than what you bought the units for to get the day’s NAV.
The cut-off time for mutual funds is a streamlined process of purchasing and selling funds with the threshold for transactions to be conducted as per a specific day’s NAV. It is crucial to note that the fate of your investment depends upon this small element called to cut off time. Failing to sell or purchase units at the correct time owing to missed cut-off time can result in losses.