Mutual Funds NAV cut-off SEBI reform

NAV cut-off reform (February 2021)

From WebNotes, a public knowledge base. Last updated 19 May 2026. Reading time ~4 min.

In February 2021, SEBI revised the applicable NAV cut-off rule for mutual fund subscriptions, removing the same-day NAV benefit for amounts above Rs 2 lakh in liquid and overnight schemes. The reform was the most significant change to the applicable NAV / cut-off rule framework in years and was implemented to prevent operational arbitrage that some institutional investors had been exploiting.

For Indian retail investors, the February 2021 reform changed the operational expectations for large-lump-sum mutual fund investments. The previous “free pricing” of large amounts gave way to a “money-realisation” requirement, aligning Indian practice with international standards.

Background

Pre-reform rule

Before February 2021, the applicable NAV rule was:

Liquid and overnight funds: Same-day NAV if application received before 12:30 PM.
Other equity, debt, hybrid schemes: Same-day NAV if application received before 3:00 PM.
No realisation requirement: NAV was determined by the application time regardless of whether the AMC’s account had actually been credited.

Operational arbitrage

The rule created an arbitrage opportunity for institutional investors:

Submit large applications before cut-off.
Get same-day NAV.
Bank float in the AMC’s account between 12:30 PM application and end-of-day settlement.
AMC fund managers had to allocate cash to the new flow but the unit holder got NAV based on existing portfolio.

This was a subtle inefficiency that benefited fast-moving large investors at the expense of long-term holders.

The reform

New rule (February 2021 onwards)

SEBI’s new rule:

Same-day NAV available only if:
- For amounts up to Rs 2 lakh: Application received before cut-off.
- For amounts above Rs 2 lakh: Money also realised in the AMC’s account by cut-off.
For amounts above Rs 2 lakh: If money realised after cut-off, next-day NAV applies.

Scheme coverage

The rule applied to:

Liquid funds.
Overnight funds.
Subsequently extended to other debt categories with limit refinements.

Implementation impact

For retail investors

For retail investors investing typical amounts (up to Rs 2 lakh):

Minimal practical change.
Standard cut-off behaviour preserved.

For HNI / institutional investors

For investors making large lump-sum investments:

Need to ensure NEFT / RTGS / IMPS completes before cut-off.
Some operational adjustment to investment timing.
One-day delay for late-realised funds (different NAV applies).

For AMCs

Removed operational arbitrage burden.
Aligned with international cash-management practice.
Simplified internal cash-flow forecasting.

For long-term unitholders

Slight benefit from the removal of late-flow free-NAV impact.
More transparent NAV-application mechanics.

External references

References

SEBI circular on NAV cut-off reform (February 2021).
AMFI Best Practice Guidelines on cut-off implementation.

Reviewed and published by

WebNotes Editorial Team

The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

Last reviewed: 19 May 2026
Conflicts of interest: WebNotes is independent. No relationship with any broker, registrar or bank named in this article.