SEBI's New NAV Cut-Off Rules for Overnight Funds Take Effect from June 1

Starting June 1, the Securities and Exchange Board of India (SEBI) will implement revised cut-off timings for determining the Net Asset Value (NAV) applicable to redemptions in overnight mutual fund schemes.

This change is part of SEBI's effort to streamline the upstreaming of client funds through pledging units in Mutual Fund Overnight Schemes (MFOS), a low-risk investment avenue commonly used by stockbrokers (SBs) and clearing members (CMs). Previously, the cut-off timing for redemptions was the same for both online and offline modes. Now, SEBI has introduced separate timings.

The following cut-off timings shall be observed by the Asset Management Companies (AMCs) for the repurchase of units in liquid and overnight fund schemes, and the corresponding Net Asset Values (NAVs) will be applied based on these timings.

• Applications received up to 3:00 PM will be processed at the NAV of the day immediately before the next business day.
• Applications submitted after 3:00 PM will be processed at the NAV of the next business day.
• For online transactions in overnight funds, a later cut-off time of 7:00 PM will apply.

  

What are Overnight Funds?

Overnight mutual funds are open-ended debt schemes that invest in government securities with a one-day maturity, making them highly liquid and low-risk. Each day, fund managers use available cash to buy short-term securities that mature the following day. Once matured, the proceeds are reinvested, continuing the daily cycle.
These funds reduce default risk due to their ultra-short maturity period and are ideal for managing client funds that need to remain easily withdrawable.

Why Mutual Funds have Cut-Off Timings?

Cut-off timings in mutual funds decide the price (NAV) at which you buy or sell units. Many people confuse this with trading hours, but they are different. Trading hours are when you can place orders, while cut-off timings determine which day's NAV you'll get. For most mutual funds (except liquid funds), if you invest before the cut-off time, you may get that day's NAV. However, since September 2020, SEBI has said that your money must also reach the fund on the same day to get that NAV. If the payment is delayed, even if you placed the order on time, you'll get the next day's NAV.

These changes aim to enhance operational efficiency and transparency in handling overnight fund transactions, offering both safety and better clarity to investors and intermediaries.