SEBI Revises Cut-Off Timings For Overnight Mutual Fund Schemes: What You Need to Know

The Securities and Exchange Board of India (SEBI) has historically assisted in developing the regulatory infrastructure that governs the capital markets in India. Understanding the intricacies in amendments to regulations as an investor is important to facilitating decision-making, especially amidst constant change as is the case with mutual funds.

One of the more recent changes that has made a big splash in the mutual fund space is SEBI’s amended for cut-off timings of Overnight Mutual Fund Schemes. The change affects both retail and institutional investors who use these products for short-term investment.

Overnight mutual fund types are a form of debt fund that invests mainly in securities with a one-day maturity. Overnight funds are generally low-risk, highly liquid options for short-term parking of investments.

[Read: Mutual Fund Cut-Off Time: All You Need to Know]

Overnight mutual funds have potential return options that beat the returns a traditional saving account, and utilize investments in government securities or short-term instruments which are high-rated. Because of this temporary nature NAV is calculated daily and transactions are made on the basis of the cut-off timing for purchases and redemptions.

In January 2025, the Securities and Exchange Board of India (SEBI) suggested increasing the cut-off time for calculating the Net Asset Value (NAV) for overnight mutual fund scheme(s) from current 3:00 PM to 7:00 PM. SEBI included this proposal to give stock brokers and their clearing members extra time after market hours to un-pledge units of Mutual Fund Overnight Schemes (MFOS) and to place redemption request to mutual funds.

The increase in this cut-off time is important for operationalising the SEBI framework which requires brokers and clearing members to upstream client funds to clearing corporations on an end-of-day basis, in cash, as lien on fixed deposits, or pledged units of MFOS created from the funds of the clients. SEBI remarked that this rule will have no effect on overnight funds and their ability to value net asset value or process night observations for typically overnight instruments, as these funds are always in low-risk, short term instruments that mature in one day.

Impact on Investors

For investors, the altered cut-off time means that they have to make their requests a little earlier in the day to ensure they are processed at the same NAV, process the institutional type of investors, since they normally will be using overnight funds for managing large amounts of capital and timing is crucial for their transactions.

As for retail investors, this change feels like a minor change but a change nonetheless. They need to understand that all transactions submitted after 3:00 PM, whereas normally allowed after the cut-off, will typically only be processed the next business day; this is a minor inconvenience to their original routine for investing.

It is also important for investors to understand that the altered cut-off time may slightly impact the returns of some overnight funds. 

For instance, prior to the day to day change, investors were able to redeem their overnight mutual fund units up to 3:00 PM, for their clients to settle, however market activities and margin changes to FIRDS wants to cut-off by 7:00 PM. 

Given the SEBIs direction to alter the cut-off to 7:00 PM, investors not only are able to un-pledge their units to request the redemption from overnight funds within the same day, but none of this would hinder operations, ensuring better liquidity management.

Implications for Fund Houses and Market Dynamics

For the mutual fund houses, the revised cut-off timing translates also to an additional layer of efficiency. With a 7:00 PM cut-off, fund managers have more time management, granting them better time to analyse the market before making investments decisions.

Also, the revision should have an impact on the daily NAV calculation of overnight funds, as it will allow the fund houses to determine that their NAV for each trading day must be accurately measured, and may even provide them adequate time for their trades to clear before the end of the current day.

This revision should also improve liquidity as the timely cut-off will allow for better price discovery and faster execution of trades.

To Sum up…

SEBI's recent announcement to revise the cut-off time for overnight mutual fund schemes is a small but important step in enhancing the efficacy and transparency of the mutual funds in India. When you hear of a regulatory change, it might not seem that important, but it can impact investors and fund houses alike.

Investors who stay aware of the environment and learn to adapt to such regulatory changes are going to be ahead of the game with the continued benefit of more opportunities and less friction in the investing process.Bottom of Form