Mutual funds pool investments from various investors and invest in different securities. When compared to direct investments in stocks, mutual funds are considered a safer option since they are managed by professional fund managers of the Asset Management Companies (AMCs).
What is NAV or Net Asset Value?
It is vital to know what NAV is and how it is decided to understand the concept of mutual fund cut-off timings. Since mutual funds comprise several stocks, bonds and other securities from different companies, it is challenging to calculate the value of a unit. The Net Asset Value comes in handy, helping figure out the value of a mutual fund scheme.
To calculate the NAV, the total value of securities (including cash, if present) in the mutual fund scheme should be subtracted by the liabilities and divided by the total number of outstanding units. Using this method, you can derive the value of mutual funds per unit.
Asset Management Companies determine the NAV of mutual funds daily and disclose it as per the regulatory timelines. If you wish to get the same-day NAV, you must apply for a purchase before the cut-off time. If the application is made after the cut-off time, you receive the Net Asset Value of the following business day.
Mutual fund cut-off time
Asset Management Companies can allot units only after realising the funds.
Even if you submit your purchase application before the cut-off time, the mutual fund house will allot your desired units only after realising the funds. Simply put, your NAV (Net Asset Value) is based on the time the Asset Management Company receives your funds.
Earlier, this rule was applicable on unit purchases of above two lakhs. For smaller investments, the unit allocation was based on same-day NAV after submitting the purchase application before the mutual fund cut-off time.
Why is cut-off time important for mutual fund investors?
According to SEBI's regulations, mutual fund organizations announce the NAV of all mutual funds as per the regulatory timelines after the market closes. It makes mutual fund cut-off time particularly important for investors when they apply for a mutual fund scheme purchase.
If you wish to purchase a mutual fund with a specific NAV based on a particular day, you must purchase them within the cut-off time. However, cut off timings vary for liquid and overnight mutual fund schemes.
In addition, if you invest after the cut-off time, your application will be accepted on the same day, but the NAV you receive will be based on the closing Net Asset Value of the next business day.
Cut-off timings for mutual funds in India
The cut-off timing varies depending on the type of mutual funds. The cut-off timing for overnight mutual funds and liquid funds is 1:30 PM, and for mutual fund redemption and other schemes applications, it is 3:00 PM. You must apply for a Mutual Fund purchase before this cut-off time to get the same-day NAV.
According to SEBIs regulation severy mutual fund Scheme in the market has a cut-off time. The allotment of the mutual fund unit is based on the applicable NAV. The Net Asset Value of a mutual fund is based on the value of securities when the market closes.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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