When we talk about investing in mutual funds, the term NAV gets mentioned frequently

The Net Asset Value or NAV of a Mutual Fund is the price of a single unit of the mutual fund scheme.

When you buy or sell mutual fund units, you have to do so at the applicable NAV. This is based on the cut-off timings and the category of the fund. The applicable NAV can be of the previous day, same day, or next day based on these timings.

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Hence, before you buy or sell mutual funds, it is important to understand how this calculation is done to make informed decisions.

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 we begin, please take a look at the latest changes made by SEBI in cut-off timings in the wake of COVID-19 until further notice.This is to manage the operational roadblocks as more investors are shifting to the online method of investing, due to lock-down and temporary suspension of offline investing mode.

If you are investing on Groww, following cut-off times (cut-off time is the time before which the fund house should receive the money for using the same-day NAV) are applicable for different categories of funds

NAV Cut-off Timings 

Scheme TypeGroww BSE Cut-Off
Liquid and overnight funds11:55 AM
Debt/Conservative Hybrid fund other than Liquid and overnight funds – > 2L12:25 PM
All other schemes other than those mentioned above – > 2L2:25 PM
Debt/Conservative Hybrid fund other than Liquid and overnight funds < 2L1:00 PM
All other schemes other than those mentioned above < 2L3:00 PM
Scheme TypeGroww BSE Cut-Off
Liquid and overnight1:00 PM
Debt/Conservative Hybrid fund other than Liquid and overnight funds1:00 PM
All other schemes other than those mentioned above3:00 PM

1. In the Case of Liquid Funds 

Liquid funds are funds that invest in very short-term debt instruments such as commercial paper, treasury bills.

Suppose you have some amount in your Groww Balance, say, Rs 5,000 and you want to invest an amount of Rs 1,000 from this balance, then, if you place the order before 11.55 a.m. , the applicable NAV would be of the previous day.

So suppose you place an order on 22nd October, by 11 a.m. ( let’s call this T or the day on which you place the order), then whatever that value of NAV was on 21st October ( T-1) would be applicable to your fund units. 

Let’s consider another case.

Now suppose, you want to place an order on 22nd October but have insufficient Groww balance. Say, you need to invest Rs 10,000 but you have only Rs 1,000 in your Groww Balance. Then you would have to add Rs 9,000 more in your Groww Balance and then place the order. In this case, however, applicable NAV will be of the next working day (23rd October)

2. In the Case of Equity and Debt Funds

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. 

On the other hand, 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

When it comes to equity funds and other categories in debt funds (excluding overnight and liquid funds), the aforementioned cut-off timing will be applicable. This is irrespective of whether you have money in the Groww Balance or not.

Now if you already have sufficient Groww Balance to invest, then, the amount can be directed to your fund immediately and hence you will get units at the NAV of the same day. However, if you have insufficient Groww Balance, then you would have to add it and the units will be allotted based on the next day’s NAV.

The applicable NAV here would be of the next day.

3. What About Redemption and Switch Requests?

For redemption requests, for all categories, the cut-off time has been updated to 1 pm. The applicable NAV would be of the same day. Similarly, for a switch to direct requests, systematic transfer plans (STP) and systematic withdrawal plans (SWP), the cut off time again is 1 pm for liquid and overnight funds and debt/conservative hybrid funds.  The cut-off timing is 3.00 p.m. for Aal other schemes other than those mentioned above. The applicable NAV would be of the same day again.

Let’s read more about NAV and it’s a calculation in the blog ahead.

How is NAV Calculated?

In the simplest terms, NAV is calculated by taking the total market value of all the shares in the fund and dividing it by the number of outstanding units. It is calculated every day at the end of trading hours. The formula for the calculation of NAV is:

NAV=(Total Asset Value-Total value of liabilities)/Total number of outstanding units

Here is an example:

Let’s say that the total assets of a mutual fund scheme are Rs 500 crore and the total liabilities are Rs 100 crore. Also, the total number of outstanding units is 8 crore. Therefore, the NAV will be:

NAV=(500,00,00,000-100,00,00,000)/8,00,00,000=  Rs 50

This is calculated every day at the end of the trading hours to give investors an idea about the fund’s market value per unit.

When is NAV Computed?

Every day, at the end of the market hours, all fund houses calculate the NAV of all their schemes. They consider the value of each instrument that the scheme holds at the end of the day for calculating the market value of the scheme. 

When Can You Invest in a Fund?

It is important to remember that you can invest in a mutual fund at any time. However, you must understand the NAV applicability rules to know the NAV that will be applied for the transaction.

As explained above, NAV applicability depends upon the type of the fund and the time of the transaction. Hence, ensure that you take these factors into consideration before investing.

Does NAV matter?

While the NAV determines the number of units you can buy for a specific amount, it does not imply the return generating capability of the fund.

NAV is simply an indicator of the fund’s performance on a given day. Even if you look at the NAV trend over the previous few months or years, it can only tell you how the fund has performed historically – again not an assurance of the future performance of the fund. Hence, the NAV has no impact on the returns of the fund nor does it indicate its performance.

For successful investing, you must look at the fundamental attributes of the fund like the Assets Under Management (AUM), the absolute and relative performance of the fund in the past, various performance indicators like the alpha, beta, Sharpe ratios, etc.

Happy Investing!

Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.

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