Cut-off time
Also written Cut-off timing · Applicable NAV cut-off
The SEBI-prescribed clock time that, read together with the time stamp on the request, decides which day's NAV a mutual fund transaction is priced at.
In plain language
When an investor hands in a purchase or redemption at an official point of acceptance during the day, nobody yet knows the price. The NAV is computed after the markets close.
The cut-off time is how the industry resolves that, fairly and identically for everyone. A machine stamps the moment the request arrived; SEBI's table then says which day's closing NAV that moment earns. It removes discretion completely — which is the point, because without it an investor who saw the market fall at 3.30 pm could still buy at the morning's price.
For the registrar it is the single most consequential field on a transaction, and the reason the time stamping machine is locked and its serial numbers reconciled every morning.
How it works
The applicable NAV depends on four things: the day of the transaction, the time of the transaction, the type of scheme, and the availability of clear funds for utilisation by the mutual fund.
| Scheme | Transaction | Cut-off | Applicable NAV |
|---|---|---|---|
| Equity and debt (except liquid) | Purchases and switch-ins | 3.00 pm | Irrespective of receipt time, closing NAV of the day funds are available for utilisation |
| Liquid funds | Purchases and switch-ins | 1.30 pm | Up to cut-off with funds available before cut-off: closing NAV of the day immediately preceding receipt |
| Equity and debt (other than liquid) | Redemptions and switch-outs | 3.00 pm | Up to cut-off: same day's closing NAV. After: next business day |
| Liquid funds | Redemptions and switch-outs | 3.00 pm | Up to cut-off: closing NAV of the day immediately preceding the next business day |
| Overnight funds | Repurchase and redemption | 3.00 pm, or 7.00 pm if received online | Up to cut-off: closing NAV of day immediately preceding the next business day |
A business day excludes any day on which the money markets are closed or otherwise not accessible. Liquid schemes nevertheless declare a NAV every calendar day.
Cut-off timings do not apply to NFOs, international schemes, or transactions in mutual fund units done on a recognised stock exchange. For electronic transactions the AMC or RTA server is the official point of acceptance, and the time the request reaches that server is what counts.
A worked example
Take a week in which Monday, Wednesday, Thursday and Friday are business days and Sunday, Tuesday and Saturday are not.
Purchase of an equity fund, Rs 3,00,000, applied on Monday. Funds are realised on Wednesday at 2 pm. For equity and debt purchases the receipt time is irrelevant — what matters is when clear funds were available. So Wednesday's NAV applies. At a Wednesday closing NAV of Rs 148.6230:
| Step | Amount |
|---|---|
| Application | Rs 3,00,000.00 |
| Stamp duty at 0.005% | Rs 15.00 |
| Net investable | Rs 2,99,985.00 |
| Units at Rs 148.6230 | 2,018.429 |
Had the bank credited the money on Monday at 2 pm and Monday's NAV been Rs 147.10, the same rupees would have bought 2,039.33 units — about 21 units more. Two days of float, twenty-one units.
Purchase of a liquid fund, applied Monday. Funds realised by 1 pm Monday, before the 1.30 pm cut-off, gets Sunday's NAV. Realised by 3 pm Monday — after the cut-off, same day — gets Tuesday's NAV. Realised at 10 am Wednesday gets Tuesday's NAV again.
Redemption from the equity fund on Monday. Before cut-off: Monday's NAV. After cut-off: not Tuesday, which is not a business day, but Wednesday's NAV.
Why NISM asks about it
Chapter 11 (Operational Concepts of Mutual Funds) devotes section 11.6 and Table 11.1 to this, and the worked week above is the workbook's own illustration. Chapter 6 introduces the cut-off as the reason investors route transactions through an ISC. Questions are almost always of the form "application submitted on day X at time Y, funds realised at time Z — which NAV applies?", plus a standing favourite on why time stamping exists at all. The answer to that one is: to determine the applicable NAV.
Common exam traps
- Liquid fund purchases cut off at 1.30 pm, not 3.00 pm — but liquid fund redemptions cut off at 3.00 pm. Two different clocks in the same scheme.
- For equity and debt purchases the receipt time is not decisive. The closing NAV of the day the funds are available for utilisation applies, whatever time the form arrived.
- "Clear funds" means without availing any credit facility, intra-day or otherwise. An overdraft-funded credit does not count.
- After cut-off means the next business day, not the next calendar day. In the worked week, a Monday post-cut-off equity redemption prices at Wednesday because Tuesday is not a business day.
- NFOs, international schemes and exchange-platform transactions are outside the table entirely.
- A distributor's office is not an official point of acceptance and cannot time stamp. A bunch of forms delivered to an ISC is stamped individually, and each is priced on its own stamp.
- Overnight funds have a 7.00 pm cut-off for online requests — the only extended timing in the table.
Check yourself
1.Which of these is not a financial transaction processed at an ISC — purchase of units, redemption of units, switch transactions, or change of bank details?
- a)All four are financial transactions
- b)Change of bank details — it is a non-financial transaction, along with contact or address changes and signature updates, while purchase, redemption and switch are financial
- c)Switch transactions, since no money enters or leaves
- d)Redemption, since it takes money out
Show the answer
Answer: (b) Change of bank details — it is a non-financial transaction, along with contact or address changes and signature updates, while purchase, redemption and switch are financial
The chapter draws the line twice.
First in describing why RTAs are needed: every day a large number of transactions, like buying, selling or switching units are done by mutual fund investors. Some of the transactions are financial transactions, while others are non-financial in nature like a change in bank details, change in contact details or address etc.
Buying, selling, switching — financial. Bank, contact, address changes — non-financial.
Second in the ISC's task list: it accepts all investor transactions such as purchase, redemption, switch etc., and separately requests for non-financial transactions such as change in bank mandate, signature update etc.
Two distinct lines in the same list, which is exactly what the question tests.
Option C misunderstands a switch. Units of one scheme are redeemed and units of another purchased; both legs are priced against NAV, so it is unmistakably financial even though no money reaches the investor's bank.
Option D is right that redemption takes money out, but that makes it financial, not non-financial.
Why the classification matters. A financial transaction is priced: as per SEBI guidelines, there is a cut-off time by when the investment has to be made to be eligible for that day's NAV. A change of bank mandate has no NAV consequence at all — it merely updates a record.
Both must be recorded, though. RTAs record and maintain data, both financial and non-financial, either in physical or in electronic form, and the RTA exists to help investors in processing of both financial and non-financial transactions.
Units 14 and 15 of this syllabus are built on the same division — financial transactions in one, non-financial in the other.
2.If an investor submits a purchase application for a liquid fund before the cut-off time and funds are available before the cut-off time, which NAV is applied?
- a)Previous day's closing NAV
- b)Same day's closing NAV
- c)Next business day's NAV
- d)Two-days-later NAV
Show the answer
Answer: (a) Previous day's closing NAV
If application is received upto the cut off time on a day and funds are available for utilisation before the cut-off time, without availing any credit facility, whether intra-day or otherwise, the closing NAV of the day immediately preceding the day of receipt of application is applicable.
The previous day's NAV — the cut-off for liquid fund purchases being 1.30 pm.
Why backwards. A liquid fund's NAV rises only by accrued interest — the chapter notes that liquid funds publish NAV every calendar day, as the change in NAV is only made up of interest accrual. An investor whose money is in the fund from today should earn today's accrual, which means buying at yesterday's price.
And why an early cut-off: liquid fund remittances may be made electronically and deployed on the same day. Therefore, they have an earlier cut-off time.
The worked week confirms it: if application is made on Monday and fund gets realized by 1 p.m. on Monday, it will be Sunday's NAV. Sunday is a non-business day, but liquid funds have a NAV every calendar day.
The other two branches of the rule. Received after cut off time on a day and funds are available for utilisation on the same day → the closing NAV of the day immediately preceding the next business day. Funds not usable before cut-off → the closing NAV of the day immediately preceding the day on which the funds are available for utilisation.
Again from the worked week: if it gets realized by 3 pm on Monday, it will be Tuesday's NAV — Tuesday being the day before Wednesday, the next business day.
Contrast the equity rule, which ignores time entirely: irrespective of the time of receipt of application, the closing NAV of the day on which the funds are available for utilisation is applicable.
Note the recurring phrase without availing any credit facility, whether intra-day or otherwise — the money must genuinely be the investor's.
3.Mutual fund transactions with a discrepancy between purchase applications and payment receipts are tagged as "NIGO". What does NIGO stand for?
- a)Not in Good Order
- b)Not in General Order
- c)New Investor Generated Option
- d)Negative Inflow Gross Order
Show the answer
Answer: (a) Not in Good Order
RTA is required to reconcile the receipt of funds with the applications and highlight discrepancies, if any, in the same. If any mismatch is found, the transaction is flagged as 'Not in Good Order' (NIGO) and units are not issued to the investors.
Good, not General — option B is the near-miss the question is built around.
Options C and D are inventions.
What the flag achieves. Units are the investor's claim on the scheme's assets; issuing them before matched money has arrived would dilute every existing unitholder, because the unit count would rise while the assets did not.
The same principle governs cheques: when payments are made through physical payment modes such as cheque, the RTA sends the payment instruments for clearing in stipulated time and to reconcile the same for cheque return. The RTA ensures that units are not issued to any investors in case of cheque return.
And it is stricter still for liquid schemes: for Liquid funds, RTA has to ensure that clear funds are available at the time of allotment of units.
Cleared, not merely presented — because liquid schemes carry a prior-day NAV rule that depends on funds being available for utilisation.
Where the RTA's banking role sits overall: RTAs play an important role in banking operations for mutual fund transactions. It helps in efficient handling of cheque receipt or return, reconciliations and verification of cut-off time for NAV applicability.
Three tasks — instruments, reconciliation, cut-off.
And note that a rejection is not silent. Under the third-party verification framework, detailed information at each stage of the relevant transaction, including rejection, shall be made available at the same time to all the stakeholders involved in the transactions, as applicable, including investors, RTAs, MFDs, IAs, etc.
Where this is taught
Free preparation for NISM Series II-BRelated terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Instant Access FacilityA facility that credits redemption proceeds to a resident individual investor's bank account on the same day, offered only in overnight and liquid schemes and only through the AMC's own website or app.
- New Fund OfferThe period in which a mutual fund scheme's units are offered to the public for the first time, at a fixed NFO price rather than at NAV, and during which the registrar builds the scheme's first register of investors.
- NIGOA transaction the registrar has flagged as "Not in Good Order" because the application and the money do not reconcile or the paperwork is defective — units are not issued until it is fixed.
- Official Point of AcceptanceA location a mutual fund has formally designated to receive transaction requests, where the application is time-stamped — and that stamp, not the moment the investor handed the form over, decides which NAV applies.
- Transaction slipThe short form an existing investor uses instead of a full application — it carries the folio number, so the registrar can process a purchase, redemption, switch or profile change without re-keying the investor.