What are cut-off timings in mutual funds?

A lot of people would be unaware of the fact that mutual funds have cut-off timings. No, the cut-off time doesn’t mean that it will restrict your purchases and redemptions. The cut-off time determines the NAV (Net Asset Value) you get when you buy or sell a particular mutual fund scheme. An individual is allotted the NAV depending on the time he submits his application and money with the fund house. This time is known as the cut-off time in a mutual fund.

Liquid, debt and equity funds have different cut-off timings. An individual can be allotted NAV of the same day, previous day or even the next day based on the time he submits his application and money. The cut-off time for liquid funds is 2 pm. If an individual invests before 2 pm, he will be allotted mutual fund units at the NAV of the previous day. However, if an individual fails to transfer the funds before 2 pm, he will be allotted units at the NAV of the same day, irrespective of the time of submitting the application.

As far as equity and debt funds are concerned, the cut-off time is 3 pm. If an individual submits the application before 3 pm, he will be allotted units at the same day’s NAV. If he submits the application after 3 pm, he will be eligible for next day’s NAV. Unlike liquid funds, you need not transfer the funds before the cut-off time.

If an individual invests more than Rs 2 lakh, he will need to submit the application and transfer the funds with the mutual fund house before the cut-off time. The cut-off timing rules apply based on the basis of when the amount gets deposited, irrespective of the time of submitting the application.

Conclusion

Cut-off timings matter to individuals who invest for a short-term. Individuals who invest from a long-term perspective do not bother about cut-off timings as one day’s movement in NAV will not make a lot of difference to them.