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.
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. 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. Note, these are applicable only till 17th April until further notice.
|Purchase Cut Off|
|Fund Type||Cut off time applicable from 7th April till April 17th||NAV applicable|
|Liquid Funds with investment amount less than 2 Lakhs||12:00 Noon||Previous day’s NAV|
|Liquid Funds with investment amount more than Rs 2 Lakhs||1:00 PM||NAV of the current day|
|All Non-Liquid Funds with investment amount less than Rs 2 Lakhs||12:30 PM||NAV of the current day|
|All Non-Liquid Funds with investment amount more than Rs 2 Lakhs||12:30 PM||Next day’s NAV|
In simple words, if you are placing an order with investment amount of less than Rs 2 Lakhs for liquid fund, and you do so before 12 noon, the the NAV applicable on the funds would be of the previous day. Similarly for liquid funds if you are placing an order with investment amount more than Rs 2 Lakhs, and you do so before 1:00 PM, then the applicable NAV would be of the current day.
When it comes to non-liquid funds, that is equity funds and other categories in debt funds, if the investment amount is less than Rs 2 Lakhs, then the cut off time to place the order to get units at current NAV is 12:30 PM. For non liquid funds with investment amounts more than Rs 2 Lakhs, the cut off time to place the order is 12:30 pm . The applicable NAV here would be of the next day.
For redemption requests, for all categories the cut-off time has been updated to 1pm.
In this article
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 funds||Any time, any amount = same day’s NAV|
|Non Liquid Funds, amount less than 2 Lakhs||Before 2:30 PM = same day’s NAV|
After 2:30 PM = next day’s NAV
|Non liquid funds , amount more than 2 Lakhs||Any time = next day’s NAV|
Liquid funds are funds that invest in very short-term debt instruments such as commercial paper, treasury bills.
If an investor submits the application and subsequently transfer the funds on the same day, he/she is entitled to the NAV of the same day.
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 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. In case of equity funds ( which fall in the category of non liquid funds), If an investor applies for the subscription before 2:30 PM with the application, the investor is entitled to NAV of the same day. In case the investor fails to apply before 2:30 pm, he gets the NAV of the next day . This is applicable if the amount is less than 2 Lakhs. If the amount is more than 2 Lakhs then, no matter when the application or transfer request is put, the NAV applicable would be of the next day.
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 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.
In debt funds which are non-liquid, for an investment amount less than Rs 2 Lakhs, if the investor applies before 2:30 pm, the NAV applicable would be of the same day. If it exceeds beyond 2:30 pm, the NAV applicable would be of the next day. For an investment amount greater than Rs 2 Lakhs, irrespective of the time, the NAV applicable would be of the next day.
Important: Temporary Changes In Cut Off Timings Due To CoronaVirus Pandemic.
While the cut off times, under regular circumstances are mentioned above, a recent circular
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.