What is the NAV applicable when you sell your fund at midnight?


Don’t worry, in this blog we will talk about Net Asset Value (NAV) and what is the cut-off timing for different category of funds. But before that, let us start with a quick recap of NAV.

What is NAV?


NAV is the fund’s market value, per unit. It is computed by dividing the total amount of assets in a fund by the number of units of the fund.

Fund houses collect money from investors and invest in various instruments such as shares, bonds, commodity, etc. The total of the current value of all these instruments (also known as assets) along with cash is taken to arrive at the Asset Under Management or AUM.

In some instances where there is any liability that is subtracted from the total assets before computing NAV.

As the price of instruments changes with time, the total AUM changes. This results in changing NAV.

NAV= Total AUM/Total number of units

If an investor is looking to invest in funds, the amount required to purchase the units is NAV of the fund multiplied by the number of units he/she is willing to buy.

Let’s take an example

Assume you are looking to buy Aditya Birla Sun Life Tax Relief 96 Fund-Direct Plan – Growth option, and you are interested in buying 1000 units of the fund. In this case, you need –

= NAV x no. of units

NAV for Aditya Birla Sun Life Tax Relief 96 Fund is 33.36 as on March 26, 2019. Using the value, we see, the investor needs

= 33.36 x 1000

= Rs. 33360

When Is NAV Computed?

NAV is calculated at the end of the day after market closing. Fund house takes into account the value of each instrument at the end of the trading day to calculate the NAV of the fund.

When Can You Invest in a Fund?


An individual can invest in a mutual fund any time of the year. But this doesn’t mean that the NAV of the transaction date will be applied. It could be possible that the NAV applied is of the following date or the previous day.

Applicability of NAV depends on the time at which the transaction is carried out, the type of fund on which the transaction is done and moreover the day on which the transaction is made.

Different types of funds have different cut-off time (cut-off time is the time before which the fund house should receive the money for using the same day NAV).

Following table details the cut-off timing for different types of funds 

Liquid funds2:00 PM
Equity funds3:00 PM
Debt funds3:00 PM

Liquid funds

Liquid funds are funds that invest in very short-term debt instruments such as commercial paper, treasury bills. The cut-off timing for a liquid fund is 2 pm.

If an investor submits the application and subsequently transfer the funds before 2 PM on the same day, he/she is entitled to the NAV of the previous day. If the investor fails to transfer the funds before 2 PM, the NAV of the same day is applicable on which the fund house has received the funds.

In the case of liquid funds, it is advisable to opt for the Real-Time Gross Settlement (RTGS) or National Electronic Funds Transfer facility (NEFT) system of transfer.

Equity Fund

Equity funds as the name suggests, invest in equities and equity related instruments. These funds are suitable for long-term investment and bear a high degree of risk given its participation in the capital market.

At the same time, these funds compensate for the high risk by offering superior returns against any other asset class.

The cut-off time for equity fund is 3 PM. If an investor applies for the subscription before 3 PM with the application, the investor is entitled to NAV of the same day. In case the investor fails to apply before 3 pm, he gets the NAV of the next day.

For this type of fund, transferring the amount before the cut-off time is not a requirement. An exception to the rule as mentioned above is that if the investment amount is higher than Rs.2 lakh, both the application and the transfer of funds should be done before the cut-off timing to avail the NAV of the same date.

We believe the cut-off timing doesn’t play a very critical role if the investor is planning for long-term investment or is starting with a small amount.

However, it could matter to investors who are investing a large sum of money and even a percentage point, or two can bring about a significant difference.

Debt Fund


Debt funds are funds that invest in debt securities such as government bonds, corporate bonds. These funds come with a relatively low degree of risk as there is no direct linkage with the capital market.

Moreover, the instruments in these funds offer a fixed rate of return and are typically assessed by an independent credit rating agency to define the risk associated with such instruments.

The cut-off time for equity and debt funds is 3 pm. If an investor applies to 3 pm, he gets the NAV of the same day and submitting it after 3 pm will make him eligible for the next day’s NAV.

For this type of funds, transferring the amount before the cut off time is not required. The only exception to the rule mentioned above is that if the investment amount is more than Rs. 2 lakh, both the application and transfer should be completed before the cut off timing.

Does NAV matter?

In India, people do give a lot of importance to the NAV of a mutual fund before investing.

We believe, a long-term investor shouldn’t get impacted with these small variables such as the NAV. A long-term investor should take into consideration the parameters that are fundamental such as Asset Under Management (AUM), past performance (both absolute and relative), performance sustainability, alpha, beta, standard deviation, up-market capture, and down-market capture.