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

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

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

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

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

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

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

So, from February 1, 2021 members will be given at the NAV applicable on the day of realisation of funds irrespective of the investment amount.

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

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

It’s almost certain that you won’t get same-day NAV in case the payment is made through cheque for buying MF units. Even if you make an electronic payment, you may have to do it well before the cut off time to assure 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 finances through a systematic investment plan (SIP) as well?

According to Sirshendu Basu, Head – Products, IDFC Mutual Fund, purchase of units in case of purchases 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 a SIP installment, as units are allotted if the fund significance is realised within 30 working days from the SIP date.

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