Mutual Fund Investment: You may not get MF units at desired NAV even if applied before cut off time

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Updated: Feb 03, 2021 9:54 PM

For investment purposes in equity-oriented and debt Mutual Funds, the cut off time becomes less relevant as the units will only be allotted after the realisation of funds.

mutual fund, MF, mutual fund investment, MF cutoff time, net asset value, NAV, same day NAV, application before cutoff time, realisation of fund, SEBI, equity fund, debt fund, liquid fund, systematic investment plan, SIPIt's almost certain that you won't get the same day NAV in case the payment is made through cheque for purchase MF units.

Depending on fluctuations in the stock market, Mutual Fund (MF) investors would rush to the respective offices of Asset Management Companies (AMCs) or the offices of their Register and Transfer Agents (RTAs) to submit applications – for redemption at high market or for purchase at a low market – before the cut off time to get the same day NAV (Net Asset Value).

However, for investment (purchase) purposes in equity-oriented and debt Mutual Funds, the cut off time becomes less relevant as the units will only be allotted after the realisation of funds from February 1, 2021 even if applications are submitted before the cut off time.

Earlier, the rule of allotment of MF units after realisation of fund was applicable only on investments of Rs 2 lakh or above, while smaller investors used to get the same day NAV by submitting the investment applications before the cut off time.

As per the Securities and Exchange Board of India’s (SEBI) instructions, for the purchase of units of mutual fund schemes (except liquid and overnight schemes), closing NAV of the day shall be applicable on which the funds are available for utilisation irrespective of the size and time of receipt of such application.

However, the existing provision on NAV applicability for liquid and overnight funds and cut-off timings for all schemes shall remain unchanged.

So, from February 1, 2021 units will be allotted at the NAV applicable on the day of realisation of funds irrespective of the investment value.

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Except liquid and overnight schemes, the cut off time for purchase of all other funds is 3 p.m. and that of liquid and overnight schemes is 1.30 pm, while cut off time for all MF schemes, including liquid and overnight schemes, is 3 p.m.

So, even if you submit an application for purchase of the units of a certain MF scheme on a day of low market, you may get the units at a higher NAV on a subsequent day at high market.

It’s almost certain that you won’t get same day NAV in case the payment is made through cheque for purchase MF units. Even if you make electronic payment, you may have to do it well before the cut off time to ensure that the money gets transferred to the fund account before the cut off time to get the same day NAV.

But will it affect your investments through systematic investment plan (SIP) as well?

According to Sirshendu Basu, Head – Products, IDFC Mutual Fund, purchase of units in case of investments through SIP will also be made at the NAV of the day on which the installment amount will be realised. However, there is little chance of cancellation of an SIP installment, as units are allotted if the fund amount is realised within 30 working days from the SIP date.

However, in case you are investing through a demat or other platform, fate of your SIP investment will depend on the transaction rule of that exchange/platform. For example, if it’s the rule of an exchange that the SIP installment amount must be realised within 5 days from the SIP date, your transaction request may be canceled in case there is any more delay in availability of the fund at the exchange.

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