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Right on the heels of the revised trading hours’ notification by the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI) has revised the cut-off timing for Mutual Funds for a temporary period. The RBI’s notification had revised the trading hours for various markets on April 03, 2020. In view of the impact from this revision, SEBI decided to reduce the cut-off timings for both subscription and redemption transactions in Mutual Funds.

Here are the revised cut-off timings:

For Subscription

  • For liquid and overnight funds, the cut-off timings were 1.30 pm. They have been revised to 12.30 pm.
  • For all other funds, the cut-off timings were 3 pm. They have been revised to 1 pm.

For Redemption

  • For liquid and overnight funds, the cut-off timings were 3 pm. They have been revised to 1 pm.
  • For all other funds, the cut-off timings were 3 pm. They have been revised to 1 pm.

These revisions which were earlier applicable from April 07, 2020, to April 17, 2020 , have now been extended till 30th April until further notice. While the cut-off timings have been changed, all other provisions pertaining to NAV applicability remain unchanged.

What are cut-off timings in Mutual Funds?

Many investors get confused between trading hours and cut-off timings. While trading hours are the allotted periods for buying or selling mutual fund units, cut-off timings determine the Net Asset Value (NAV) at which you can buy or sell mutual fund units. Cut-off timings are different for different types of funds. Based on the cut-off timing, you can receive the NAV of the current day, the previous day, or the next day.

According to the latest revision, if you are buying units of a liquid fund or an overnight fund before 12.30 pm, then you will receive units based on the NAV of the previous day. However, you also need to ensure that you transfer the funds before 12.30 pm too. On the other hand, if you miss the cut-off time and submit your transaction request after 12.30 pm, then you will receive units based on the NAV of the same day. 

Also, if you are buying units of any other fund like a debt fund or an equity fund before 1 pm, then you get the same day’s NAV. On the other hand, if you submit the application after 1 pm, then you get the next day’s NAV. Unlike liquid funds, there is no requirement to transfer funds before the cut-off time. Additionally, it is important to remember that this rule applies to transactions up to Rs.2 lakh only. If your transaction amount is greater than Rs.2 lakh, then the time when you deposit the funds will be considered while applying the cut-off time rules.

Why were the cut-off timings revised?

Due to the 21-day lockdown in the country to contain the spread of coronavirus, AMCs and RTAs have kept their offices closed. Also, SEBI has urged investors to opt for online transactions since there is no way to accept and process physical forms. As the number of online transactions rises, the authorities need to manage operational roadblocks efficiently with reduced manpower. This seems to be the most probable reason behind the revision.

As per the circular, this is a temporary move and SEBI will review it after the lockdown ends. While this might seem like a lesser time for buying or selling mutual fund units, for the long-term investors, this should not make a huge difference.

Happy Investing!

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