In the recent update, the Securities and Exchange Board of India (SEBI) issued a circular SEBI/HO/IMD/DF2/CIR/P/2020/253 on September 17, 2020. The circular states that the Net Asset Value (NAV) will be allotted based on the day when the funds are realised. The term ‘realisation’ refers to the day on which the fund house receives the amount you invested in any particular scheme. Let's discuss this regulation in detail.
New SEBI guidelines on mutual funds cut-off time
1. Purchase orders
When investing in mutual funds, the NAV for credit of units depends on when the Asset Management Company (AMC) receives the funds. If the investment amount for liquid funds is received by 1:30 pm, the previous day's NAV applies. In case of investment amounts for non-liquid funds received by 3 pm, the same-day NAV is applied.
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If funds are received beyond the cut-off timings mentioned above, the NAV of the next day applies, depending upon the scheme type.
2. Redemption order
If you want to redeem units from your investment, the request must be placed before 3:00 pm. The previous day's NAV applies if the request for liquid funds is submitted to the Registrar and Transfer (R&T) agency before 1:30 pm. The same-day NAV applies for non-liquid funds if your request is submitted before 3:00 pm.
Relevance of cut-off timings
Determination of NAV
The cut-off time determines the NAV at which units are traded. The same day's NAV is applied if an order is placed before the cut-off. Orders placed after the cut-off time receive the NAV of the next business day, which may result in changes in the purchase cost or the proceeds from selling units.
Timing of investment
You must plan your investment, keeping in mind the cut-off timings. This becomes crucial, especially in a volatile market. The reason is even a slight delay can lead to a significant change in the NAV.
Liquidity management
For redemption orders, the cut-off time determines when the investor will receive the funds. This is particularly important for liquid and overnight funds, which are often used to manage short-term liquidity.
Fairness and transparency
These timelines ensure that all investors, regardless of their type and the transaction amount, get the same NAV for their transactions conducted at the same time. This brings fairness and transparency to the mutual fund industry.
How can the impact of cut-off times be minimised?
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Early planning: You must plan your investments well in advance. It will give you sufficient time to place your orders before the cut-off time and avoid last-minute rush.
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Regular monitoring: Monitor the market trends closely. If the market is volatile, try placing your order early in the day. This may help you lock in the NAV of the same day.
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Automated investments: You may opt for a Systematic Investment Plan (SIP). These plans automatically debit a fixed amount from your account and invest it in a specific mutual fund scheme at regular intervals. This will eliminate the need to worry about cut-off times.
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Fund house rules: Each fund house may have different cut-off times based on their internal processes. Make sure you understand these rules to make informed investment decisions.
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Leverage technology: Place your orders on online platforms. These platforms operate 24/7 and allow you to place your order at any time. The transaction will be executed at the NAV of the next applicable business day.
Conclusion
The recent SEBI regulations on mutual fund cut-off timings aim to ensure fairness and transparency in NAV allotment. Effective from specified timings, these rules determine when your transactions are processed. It is important to plan your investment ahead, monitor market conditions, and use automated tools to make the most of the cut-off timings.
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