Market watchdog SEBI recently trimmed the cut-off timings temporarily for mutual funds to accept redemption or subscription requests. The decision came after the RBI cut the trading hours for the debt and currency markets due to operational and logistical hurdles arising from the nationwide lockdown. The new rule is applicable only between April 7-17 (both days inclusive). It is expected to be extended until the lockdown ends.

What is it?

Cut-off timings determine the NAV you are entitled to get when you buy or sell units of your mutual fund scheme. Whether it is the NAV of the same day or the previous day or the next day depends on the time by which you submit your application and make the payment. For this purpose, MF schemes are bifurcated as liquid/overnight funds and equity/hybrid/debt funds.

Under normal circumstances, when you buy the units of liquid/overnight funds and submit your application form and transfer the funds before 1.30 pm on a business day, then you will be allotted units at the NAV of the previous day. After 1.30 pm, then you will get at the NAV of the same day. Note that if you submit your application before the cut-off time but the fund transfer is realised after that, then you will be allotted at the NAV of the same day.

The normal cut-off time for buying the units of equity/hybrid/debt funds is 3 pm. If you submit the application and make the payment before 3 pm, you will be allotted units at the NAV of the same day. In case your application is submitted after 3 pm, then you will get the NAV of the next day.

There’s a small catch here though. For an investment of less than ₹2 lakh in equity/hybrid/debt funds, same day NAV is allotted even if the amount is realised after the cut-off time provided you submitted the application before cut-off time. But for ₹2 lakh or more, you need to ensure that both the submission of application and transfer of funds happen before the cut-off time for the same day NAV.

Under normal conditions, the cut-off time for the redemption of all funds is 3 pm. But as per SEBI’s latest rule applicable between April 7-17, the cut-off time for subscribing to liquid and overnight funds has been changed to 12.30 pm while that for equity/hybrid/debt funds it is 1 pm. The cut-off time for redemptions is 1 pm.

Why is it important?

The lockdown has impacted the functioning of AMCs and Registrar and Transfer agents due to the limited availability of staff. With the number of online transactions rising, the reduced cut-off time enables them to manage the operational constraints efficiently with less manpower.

Cut-off timing is important for large investors like institutions, banks and HNIs. They often wait till 3 pm to sense the trend in the financial markets (including Indian and global) and, accordingly, deploy their money in equity/debt funds or divert it into liquid/overnight funds. For investors parking a large sum, even a very small per cent of return makes a lot of difference.

Why should I care?

Looking to buy equity funds on a day the Sensex tanked sharply? Being aware of the cut-off timings will help you know if you’ll get the same day’s NAV. If you are an investor investing through online distributors, it may pay to check their own rules on cut-off timings, as many of them have their own cut-off time at least one hour prior to the AMCs’.

Finally, for retail investors making redemption requests, missing the cut-off time will delay the redemption process. Normally, redemption amounts in liquid funds are credited in your account within a day, while in debt, equity and overseas funds, the time taken would be two, three and five working days respectively.

The bottomline

When market swings are manic, even an hour matters.

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