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Equity Mutual Fund Cut-Off Timing Restored. Find out What it Means for Investors
Oct 20, 2020

Capital market regulator SEBI has restored the cut-off timing for subscription and redemption in mutual fund schemes with effect from October 19, 2020. However, the normal/original cut-off timing has been restored only for schemes other than those belonging to debt and conservative hybrid category.

The reduced cut-off timing for debt schemes and conservative hybrid fund will continue until further notice from RBI on the truncated market hours for trading in debt market.

The cut-off time for subscription (purchase & switch-in) and redemption (sale) in equity schemes and schemes other than debt and conservative hybrid is now 3 pm. This means that if you submit an application for subscription or redemption in these schemes before 3 pm the allotment of units will be based on the closing NAV of the same day.

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For debt schemes and conservative hybrid funds, other than liquid and overnight funds, the cut-off time is 1 pm.

In case of liquid and overnight funds, the cut-off time for subscription is 12:30 pm while that of redemption is 1 pm. Do note that for subscription in liquid and overnight funds, if the application is submitted (and the amount is received by the AMC) before the cut-off time, the previous day's NAV is allotted. Same day NAV will be applicable if it is done after the cut-off time.

Table: Mutual fund cut-off timing for applicability of NAV from October 19, 2020
Scheme Category Cut-off timing (subscription) Cut-off timing (redemption)
Liquid and overnight funds 12:30 PM 1:00 PM
Debt schemes and conservative hybrid funds (other than liquid and overnight funds) 1:00 PM 1:00 PM
All funds other than those mention above 3:00 PM 3:00 PM
(Source: AMFI)

SEBI had temporarily reduced cut-off time for subscription and redemption of mutual funds in April this year. Due to the nationwide lockdown to curb the spread of COVID-19 outbreak, mutual fund offices and Registrar and Transfer Agency (RTAs) remained closed. Thus various mutual fund-related operations took place at reduced capacity, due to which SEBI advanced the cut-off time.

Accordingly, the cut-off time for subscription in equity, debt and hybrid schemes (excluding liquid and overnight schemes) was revised to 1 pm from 3 pm, cut-off time for subscription in liquid and overnight schemes was revised to 12:30 pm from 1:30 pm. Similarly, the cut-off time for redemption in all schemes was changed to 1 pm.

Now with business activity gradually moving towards normalization, SEBI has restored the cut-off time for some categories of mutual funds. Investors now have the time till 3 pm to place their orders in such scheme for subscription and redemption transactions.

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New NAV applicability norms will set in next year

With effect from January 01, 2021, investors in equity and debt funds will be allotted mutual fund units based on the closing NAV of the day on which the asset management company (AMC) receives the fund. This will be done irrespective of the size and time of receipt of such application.

At present, investors get the closing NAV of the same day as the day of application provided the application is submitted before the cut-off time for an investment of up to Rs 2 lakh in equity and/or debt funds. However, if the transaction takes place after the cut-off time, investors get the next day's NAV. In case the investment amount exceeds Rs 2 lakh, investors are allotted units based on the closing NAV of the day when the amount reaches the mutual fund house.

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With effect from January 01, 2021, even if the investment amount is below Rs 2 lakh investors will get the NAV of the day when the amount is available to the AMCs for utilization.

For investment in liquid and overnight funds, there is no change in rules as it is already applicable to these funds i.e. investors get the NAV of the day when the amount is received by the AMC.

Does one-day NAV difference matter?

As an investor, it should not matter if you miss the cut-off time and get allotted the next day's NAV, provided you invest with a long term horizon in mind. Moreover, if the size of the investment is small, missing the cut-off time would not make much difference on your portfolio over time.

Remember for investors in mutual funds, what matters is `time in the market' and not timing the market. Mutual funds should not be traded as stocks because they are long term investment instruments. So, instead of timing the market, one should choose a suitable and worthy scheme based on their financial goals, risk appetite and investment horizon and hold on to the investment till the investment objective is achieved.

Author: Divya Grover

This article first appeared on PersonalFN here.

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PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


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