Investors in mutual funds buy and sell units at the applicable net asset value (NAV) of the scheme. The NAV for a purchase transaction depends upon the type of scheme, the day and time of making the application and the amount invested.
Type of scheme
The rules, defined by capital markets regulator Securities and Exchange Board of India, distinguish between liquid and overnight funds on the one hand and equity and debt funds on the other.
The applicable NAV for purchases in liquid and overnight funds are historical NAVs—the NAV of the previous business day—provided certain prescribed conditions are met. This means that the investors know the NAV they are going to get at the time of making the investment.
For purchase and redemption in equity and debt funds and redemption in liquid and overnight funds, the prospective NAV—the NAV of the day on which the application is being made—is the applicable NAV. This prospective NAV is unknown to the investors at the time of making the application.
The applicable NAV is subject to the conditions on cut-off time and the investment amount being met, in case of a purchase transaction.
The time at which the application for purchase or redemption is received on a business day at the designated official points of acceptance determines the applicable NAV for a transaction.
For purchase transactions in liquid and overnight funds, the cut-off time is 1.30pm and for all other categories of funds, it is 3pm. The cut-off time for redemption for all the categories of funds is 3pm. Where the application is received by the cut-off time, the NAV applicable, whether historic or prospective, depending upon the type of scheme, will apply. The cut-off time will also apply for any switches in or out of schemes.
If the application is received after the cut-off time, then it will be processed for the next business day.
Apart from the cut-off time, one additional filter—the availability of funds to the mutual fund to invest (clear funds)—is applied to determine the applicable NAV for purchase transactions.
In case of liquid funds and overnight funds, clear funds for the entire investment amount should be credited to the scheme before the cut-off time to be considered for processing for that particular day. If not, it will be processed on the day on which funds are available before the cut-off time for utilization by the scheme.
In case of equity and debt funds, where the application amount is ₹2 lakh or more, the application will be processed at the NAV of the business day the funds are credited to the scheme’s account before the cut-off time.
Investors in mutual funds should be aware of the cut-off times and the requirement for clear funds so that they can be sure about when the units or funds, depending on whether it is a purchase or redemption transaction, will be available in their accounts.