Over the long term an, investment made a day or two later really does not impact the return much
In just the last couple of weeks, the Sensex has fallen nearly 20 per cent. Some investors may consider this as an opportunity to deploy funds. Now, let’s say the market falls by 10 in the morning and you wish to invest some amount in your equity mutual fund to take advantage of the decline. Would you get to enter at the day’s low? That’s when you need to know what the cut-off timing of a mutual fund is.
What is Cut-off time?
It is the time before which you must invest to get a particular day’s net asset value (NAV). And if you invest after this, you get another day’s NAV.
For a liquid fund, the cut-off time is at 1.30 pm and for all other mutual fund schemes, it is 3 pm. For liquid funds, if you invest before 1:30 pm, you get the previous day’s NAV. After 1.30 pm, you get the present day’s NAV. For all other debt and equity funds, if you invest before 3 pm, you get the same day’s NAV. Invest after 3 pm and you get the following business day’s NAV.
Online transactions are also subject to the same cut-off timings. But that’s only if you go through the websites of CAMS or Karvy or of a mutual fund house. An online distributor’s website or a robo-advisor or any other such online platform might close an hour or so early compared to the regular cut-off time.
No intra-day allocations
Depending upon the time at which you transact and the realization of funds, you are allotted the units of schemes. If you invest less than Rs 2 lakh in an equity or a debt scheme before the cut off time (3 pm), you get that day’s NAV for that scheme. The NAV for a scheme is given at the end of a business day. For transactions after 3 pm, the next day’s NAV is applicable.
For amounts in excess of Rs 2 lakh, units are allotted to investors only when the funds reach the mutual fund’s bank account. The cut-off time remains the same. Purchases via systematic investment plans are also subject to these cut-off times.
What about switch and systematic transfer?
A systematic transfer will be treated like a switch transaction from one scheme to another. So, if you switch from a liquid fund on March 16, before 1.30 PM, you will be paid as per the NAV as of March 16. The amount so transferred to, say, an equity fund will be received by your new equity scheme on March 17 and the units will be allotted as per the NAV of March 17.
When a switch is made from a non-liquid fund (say an equity fund), the amount would be realised after three business days. If you switch out of an equity fund before the cut-off time (3pm) on March 16, and the funds are received by the mutual fund on March 20, then the liquid fund’s units will be allotted as per the NAV of March 19.
Does cut-off time matter?
Getting a particular day’s NAV can give temporary satisfaction to an investor. However when you are investing in an equity mutual fund for the long term – typically more than five years – an investment made a day or two later really does not impact the return much.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.