NAV - Net Asset Value

Net Asset Value (NAV) represents the unit value of a mutual fund scheme. It is calculated as the market value of the scheme's securities divided by the total number of units issued by the scheme on a specific date.

For example, if the market value of a mutual fund's securities is ₹2 Crore and the fund has issued 10 lakh units of ₹10 each, the NAV per unit will be ₹20 (i.e., ₹2 Crore ÷ 10 lakh).

Unlike stock prices, which change throughout the trading day, mutual fund NAVs are determined only once at the end of each trading day after markets close, as per SEBI regulations. For most schemes (except Liquid and Overnight Funds), units are allotted based on the NAV declared at the end of the day. This is called the prospective NAV and is based on the closing market value of the securities in the scheme.

Since the market value of securities changes daily, the NAV of a scheme also fluctuates every day. NAVs are published daily on the mutual fund’s website and the AMFI website. New Rule on Applicable NAV (Effective from February 1, 2021)

Cut-off Timings for Mutual Fund Transactions

The table below shows the cut-off timings for subscriptions and redemptions across different types of mutual fund schemes:

Type of Scheme	Transaction Type	Cut-off Time
Liquid Funds & Overnight Funds	Subscription (including Switch-in)	1:30 p.m.
	Redemption (including Switch-out)	3:00 p.m.
All Other Schemes	Subscription (including Switch-in)	3:00 p.m.
	Redemption (including Switch-out)	3:00 p.m.

What is the new rule on Applicable NAV?

As per SEBI circulars (dated September 17, 2020, and December 31, 2020), effective February 1, 2021, the NAV for all mutual fund purchase transactions will be determined based on when the funds are credited to the mutual fund’s bank account before the cut-off time. This rule applies to all schemes, regardless of the investment amount.

This rule was already in place for Liquid Funds and Overnight Funds before February 1, 2021. Which transactions are affected?

The rule applies to:

1. All purchase transactions – whether it’s an initial purchase, additional purchase, lump-sum investment, or through a Systematic Investment Plan (SIP), regardless of the investment amount.

2. Switch-in transactions – This includes transactions under Systematic Transfer Plans (STP) or trigger events.

How is the Applicable NAV determined?

Condition	Applicable NAV
Transaction and funds received before 3:00 p.m. on the same business day	NAV of the same business day
Transaction received before 3:00 p.m., but funds credited after 3:00 p.m. or on a later day	NAV of the business day when funds are credited before 3:00 p.m.
Transaction received after 3:00 p.m., but funds credited before 3:00 p.m. on the same day	NAV of the next business day
Both transaction and funds credited after 3:00 p.m.	NAV of the next business day when funds are credited before 3:00 p.m.

Examples

Example 1: Lump Sum Purchase

• A purchase transaction of ₹50,000 is submitted (time-stamped) before 3:00 p.m. on Thursday, February 11, 2021.

  • If the funds are credited to the mutual fund’s bank account before 3:00 p.m. on the same day, the investor will get the NAV of February 11.

  • If the funds are credited after 3:00 p.m. on February 11, the NAV of February 12 (Friday) will apply.

  • If the funds are credited after 3:00 p.m. on February 12, the NAV of February 15 (Monday) will apply (February 13 and 14 are non-business days).

Example 2: SIP Transaction

• An investor has an SIP of ₹5,000 set to debit on the 10th of every month.

  • Earlier, the investor would get the NAV of the 10th, regardless of when the funds were credited.

  • Under the new rule, the investor will get the NAV of the 10th only if the funds are credited to the mutual fund’s account by 3:00 p.m. on the same day.

  • If the funds are credited after 3:00 p.m. on the 10th, the NAV of the next business day will apply.

To ensure timely allotment of units, investors are advised to use electronic payment methods for faster transfer of funds.

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Disclaimer: This blog is for educational purposes only. The securities/investments mentioned here are not recommendations.

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