I want to invest in mutual funds. But before investing I want to know whether I will get the NAV of the time I invest at or at a later time? Please advise me on this.
Kavita Sinha, via e-mail
Your question shows that you are influenced by direct equity investing, where you get the price of the share as it is at that particular point in time.
Unlike stocks, mutual funds don't declare NAVs through the day. Instead, NAVs of all mutual funds, not just equity funds, are disclosed at the end of the trading day after markets are closed.
But what is important here is the cut-off time. If you invest by the cut-off time, you will get the NAV of that particular time. Many equity mutual funds have a cut-off time of 3:30 p.m. This means that if you have inves-ted till 3:30 p.m. on a particular day, you will get that day's NAV. A fund may accept applications after this time but you will get the NAV of the next day then. This cut-off time applies to redemptions too. Generally, equity funds have a cut-off time of 3:30 p.m. Short-term and ultra-short term funds usually have a cut off time between 10 a.m. and 12 p.m. As these funds are of a shorter duration and every day counts, the AMCs would like to receive investor applications as soon as possible so that the cheques can be processed and the money is invested. Similarly, investors would also like to receive their redemption proceeds as early as possible and an early cut-off time facilitates this.
You may still be wondering as to why mutual funds do not declare their NAV throughout the day. Well, it could be a matter of technology. If funds had access to their assets and liabilities on a real-time basis, then it might have been possible for funds to declare NAVs on a real-time basis. There is, however, one class of funds which gives you a as close as possible idea about your real-time NAV. These are exchange-traded funds. The NAV of these funds is a fraction (usually one-tenth or one-hundredth) of the value of the underlying index at any given moment. As this is bought and sold at a small premium or discount to the value of the underlying instruments, it is the closest one gets to the concept of real-time NAV in the mutual fund world.