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What Does Cut-Off Time Mean In Mutual Funds Schemes?

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cut-off timing in mutual funds
cut-off timing in mutual funds

What Is Cut-Off Fix Time?

Mutual funds have a fixed time to applying for investment and for redemption as well. Cut-off timing is one of the important factors related to investment in mutual funds, do you know about cut-off timing in mutual funds?.

Lockdown due to COVID-19 shows its impact on the cut-off timings of the mutual funds, the cut-off timings of the mutual funds have been temporary changes from April 7, 2020, to April 30, 2020. Reduction in timing by Reserve Bank of India, also excite mutual funds markets to change cut-off time due to COVID-19.

Importance Of Cut-Off Time

Cut-off timing effect directly to the Net Asset Value (NAV). For enjoying a good Net Asset Value to your investment in mutual funds you have to follow the cut-off timing of mutual funds. For investors, it is necessary to focus on the cut-off timing for their investment, because cut-off timing shows its impact on Net Asset Value.

Net Asset Value is one of the important factors to determine while investing as well as withdraw from mutual funds.

You can know more about Net Asset Value in the most next section.

cut-off timing in mutual funds
cut-off timing in mutual funds

What Is Nav?

The market value of the mutual funds unit is Net Asset Value. Net Asset Value causes the overall value or cost of a mutual fund. Net Asset Value is just like share price; share market have share price for investors, mutual funds have Net Asset Value for investors to get more about the mutual funds. Net Asset Value has units, mutual funds unit begin with a unit-cost of Rs 10, unit-cost increase as the fund’s assets grown under AMC. It is simple to get that popular fund will have higher Net Asset Value whereas less popular fund has less Net Asset Value than the popular fund.

How To Calculate Net Asset Value?

As we know, the importance of Net Asset Value. So, it is important to know how to find out the net asset value of a mutual fund for a better investment. There are two types of calculation regarding Net Asset Value:

  • GENERAL NET ASSET VALUE: Suppose, if a mutual fund has a Net Asset Value of Rs 25, and you want to invest Rs 25,000 then they will allow you 1000 units of that fund. Net Asset Value is the amount you have to pay for one unit of that mutual fund.
  • DAILY NET ASSET VALUE: Mutual funds keep cut-off timing for the daily investment. Equity, bonds, and share are the assets of a mutual fund. The daily expenses are deducted by the manager to manage a mutual fund. You can find the Net Asset Value by the following basic formula:

NET ASSET VALUE = ASSESTS – (LIABILITIES + EXPENSES)/ NUMBER OF UNITS

There are a direct effect of cut-off time on the mutual funds, let’s understand them-

Liquid Funds

There is a mutual fund cut-off time for buying liquid funds. The cut-off time is 1:30 pm (IST). If you submit the purchase application and transfer the amount of investment for the liquid funds before the cut-off time of the liquid which is 1:30 pm (IST) on a working day, then you will be allotted the preceding day mutual fund’s net asset value. But, if you submit the purchase application and transfer amount after 1:30 pm (IST), you will get the same day mutual fund’s net asset value.

Equity Or Debt Funds

3 PM (IST) is the cut-off timing for equity and debt funds of mutual funds. The cut-off timing system is unlike liquid funds for equity and debt funds. If you submit the purchase application before 3 PM (IST) of an equity or debt funds you will be allotted the NAV of the same day. But if you file an application of purchase after 3 PM (IST), the equity or debt funds you will allot the NAV of the next day.

There is an important note related to equity or debt funds purchase in case of investment less than Rs 2 lakhs, it is important to submit only the purchase application before 3 PM (IST) to get the required NAV. Investment for equal or more than 2 lakhs, if you want to same-day NAV then you have to submit the purchase application and transfer the investment amount before the cut-off time.