June 4th Glitch: Don't Miss the Next Dip! Know Your Mutual Fund Cut-Off Times

Jun 11, 2024 / Reading Time: Approx. 7 mins

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June 4th Glitch: Don't Miss the Next Dip! Know Your Mutual Fund Cut-Off Times

Editor's note: This article has been updated to ensure it reflects the latest SEBI cut-off timings, implemented on February 01, 2021. We've also incorporated insights from the recent June 4th glitch to provide even clearer guidance on navigating mutual fund transaction cut-off times effectively.

The Indian stock market experienced a rollercoaster ride on June 4th, 2024. There was a significant drop coinciding with the Lok Sabha 2024 election results. This event presented a lucrative opportunity for savvy investors to 'buy the dip' and potentially benefit from a market rebound.

However, a technical glitch involving cut-off timings for mutual fund transactions threw a wrench into these plans for many investors. The glitch stemmed from a delay in payment data received from banks by the mutual fund industry.

This delay impacted the processing of orders placed by investors through various online platforms. Although many investors initiated their purchases before the standard cut-off time (typically 2 PM or 3 PM), the glitch resulted in their transactions being processed the following day i.e. June 05, 2024.

Although you can buy and sell mutual fund units throughout the day during office hours, there is a cut-off time during the day that determines which day's NAV your transaction would take.

Net Asset Value (NAV) - NAV represents the per share/unit price of the mutual fund on a specific date or time. It is the market value of all securities held by the mutual fund scheme. NAV, in simple terms, is the price you pay for the units of the mutual fund scheme.

Here's the formula to obtain NAV of a fund:

NAV = (Total Assets - Total Liabilities) / Total Number of Outstanding Units.

Total assets are the value of all the securities in the portfolio and Total liabilities is the value of overall liabilities like fund expenses (such as staff salaries, management expenses, operational expenses, audit fees, etc.) mutual funds are required to calculate their NAV at least once every business day.

[Read: Did You Invest in MFs On June 4 But Were Allotted Units The Next Day? Know Here Why]

Understanding the importance of Cut-off time

For subscriptions and redemptions of mutual fund units, there is a set cut-off time. When you buy or sell units of your mutual fund scheme, the Net Asset Value (NAV) you receive is determined by the cut-off time. Simply put, the time that you submit your application to the fund house will determine the allocation of NAV.

In the world of mutual funds, this time is known as cut-off time. Distinct mutual fund categories, including liquid, debt, and equity funds, have different cut-off times. Depending on when you submit your application, you may receive the NAV for that day, the day before, or the day after.

Investors have to submit applications at offices of Asset Management Companies (AMCs) or their Registrar and Transfer Agents (RTAs). You have to ensure the application is submitted before the cut-off time. Only then you could redeem at a high market or purchase at a low market.

By applying before the cut-off time only you could get the same-day NAV (Net Asset Value). A day's difference doesn't matter for long-term investors, but the cut-off timing matters if you want to gain from swift and unexpected market movements.

[Read: Top 7 Equity Mutual Funds That Delivered Over 20% CAGR in Modi 2.0]

However, online mutual fund distribution portals have advanced cut-off times to process transactions before the mutual fund's cutoff time. Fintech has made buying and selling mutual funds easier than ever before thanks to various digital portals and investing applications.

It's vital to always check the specific cut-off timings for your chosen investment method and fund category before placing your order. Most mutual fund distributors and AMCs display these timings on their websites or mobile applications.

Cut-off timings for mutual fund transactions:

(For determining applicable Net Asset Value (NAV) for subscription and redemption transactions)

Type of Schemes Cut-off timings
(including Switch-in from other schemes)
Subscription Redemption
Liquid Funds & Overnight Funds 1:30 PM 3:00 PM
All other schemes (other than Liquid Funds / Overnight Funds) 3:00 PM 3:00 PM
(Source: AMFI)
 

As per the SEBI circular dated September 17, 2020, read with the circular dated December 31, 2020, effective from February 01, 2021, the applicable NAV in respect of the purchase of units of mutual fund scheme shall be subject to realization & availability of the funds in the bank account of mutual fund before the applicable cut off timings for purchase transactions, irrespective of the amount of investment, under all mutual fund schemes. (The above rule is already applicable for purchase transactions under Liquid funds and Overnight Funds).

In simple words, as per new NAV rules by SEBI, the cut-off time is now less relevant. From February 01, 2021, the mutual fund houses will only allot units after the realization of funds. So, even if you apply before the cut-off time the allotment will be upon realization of funds, which means the NAV applicable on your transaction will depend on when the fund house receives your money.

Which types of transactions are covered under this new rule by SEBI?

The rule applies to all investments irrespective of the amount of investment. It covers all mutual fund schemes except Liquid funds and Overnight Funds.

  • All purchase transactions - whether Initial purchase or additional purchase of units; whether lump-sum investment or under Systematic Investment Plan (SIP); irrespective of the amount of investment.

  • Purchase of units through Inter-scheme switching of investments, including switch transactions under a Systematic Transfer Plan (STP) or trigger events irrespective of the amount of investment.

Time of receipt of Transaction and Money Applicable NAV
Where the purchase transaction is received up to the cut-off time of 3.00 p.m. on a business day at the official point(s) of acceptance and funds for the entire amount of subscription/purchase are available for utilization up to 3.00 p.m. on the same Business Day. NAV of the same Business Day
Application is received up to the cut-off time of 3.00 p.m., but the funds are available for utilization after 3.00 p.m. on that Business Day or on a subsequent Business Day NAV of the subsequent Business Day
Application is received after the cut-off time of 3.00 p.m. and the funds are realized up to 3.00 p.m. on the same Business Day. NAV of subsequent Business Day
Application is received after cut-off time of 3.00 p.m. and funds are realized after 3.00 p.m. on the same Business Day or subsequent Business Day. NAV of subsequent Business Day on which fund realized before 3.00 p.m.
(Source: AMFI)
 

Therefore, to receive the NAV of the same day at a market low, even if you apply to buy units of a specific MF scheme before the cut-off time, you must ensure that even the funds are realised in the bank account of the fund house before the cut-off time on the same business day.

It's almost certain that you won't get same-day NAV in case the payment is made through cheque for the purchase of MF units. Even if you make an electronic payment, ensure to do it well before the cut-off time so that the money gets transferred to the fund account before the cut-off time to get the same-day NAV.

However, in case you are investing through an online platform, the fate of your mutual fund investment will depend on the transaction rules of that exchange/platform.

To conclude...

The June 4th glitch highlighted the critical role of cut-off times in mutual fund transactions. These deadlines determine when an investor's funds need to be credited to the mutual fund house's account for them to be allotted units at the same day's NAV. Investors who place orders beyond the cut-off time will have their purchases processed at the NAV of the next business day.

This recent incident served as a stark reminder of the importance of being informed and prepared when participating in the financial markets. By understanding cut-off timings, planning your investments, and choosing reliable platforms, you can take control of your investment journey and capitalize on future market opportunities.

Remember, knowledge is power, and in the dynamic world of finance, being prepared can make a significant difference in your investment success.

To summarise...

The June 04, 2024 incident serves as a valuable learning experience for all stakeholders. By implementing the suggested solutions and fostering investor education, the industry can build a more resilient and efficient mutual fund investment ecosystem. This will benefit investors by providing a transparent and reliable platform to navigate market movements and achieve their financial goals.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.

 


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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