SEBI mutual fund settlement rules will change from April 1, 2027, allowing eligible mutual fund schemes to adjust money payable for share purchases against money receivable from share sales.
The move is aimed at reducing temporary funding requirements and making cash-market transactions more efficient.
The Securities and Exchange Board of India (SEBI) has permitted net settlement of funds for qualifying transactions carried out by mutual fund schemes in the cash segment of stock exchanges.
The facility will apply at the individual scheme level and will operate under specific conditions.
 What Is the New SEBI Mutual Fund Settlement Rule?
Under the existing arrangement, institutional investors generally settle their eligible cash-market purchase and sale obligations separately on a gross basis.
This means the payment for purchases and the money received from sales are accounted for independently.
Under the new framework, eligible purchase and sale obligations can be adjusted against each other within the same mutual fund scheme and settlement cycle. Only the remaining amount will need to be settled.
For example, if a scheme purchases eligible shares worth Rs 1,000 and sells other eligible shares worth Rs 2,000 during the same settlement cycle, the two fund obligations can be adjusted.
The scheme would receive the net difference of Rs 1,000 instead of arranging the full purchase amount separately.
This arrangement is expected to reduce the need for mutual fund schemes to temporarily arrange additional cash for settling transactions.
It is primarily an operational change for fund houses rather than a change to the investment process followed by individual investors.
 Which Mutual Fund Transactions Qualify?
The facility will not apply to every transaction in the stock market. SEBI has restricted net settlement to eligible outright purchase or sale transactions undertaken by an individual mutual fund scheme within the same settlement cycle.
An outright transaction means a purchase or a sale of a particular security, but not both, by the same scheme during that settlement cycle.
If a mutual fund scheme buys and sells shares of the same company within the same settlement cycle, those transactions will not qualify for the new facility.
They will continue to be settled on a gross basis.
The framework also does not permit different schemes belonging to the same mutual fund house to adjust their payment obligations against each other.
Each scheme must maintain its own settlement obligations, and inter-scheme funding or adjustments are not allowed.
Derivatives and Short Selling Remain Outside the Rule
SEBI has kept several types of market transactions outside the new arrangement.
These include derivatives, securities lending and borrowing transactions, short-sale-related transactions and other transactions that are not specifically covered by the framework.
Where eligible purchase obligations are higher than eligible sale proceeds, the mutual fund scheme will have to arrange funds for the remaining amount.
Similarly, excess proceeds from eligible sales cannot be used to meet payment obligations arising from transactions that do not qualify for net settlement.
Another important point is that the new facility applies only to fund obligations.
The settlement of securities will continue on a gross basis, meaning the actual securities delivery process will not shift to net settlement under this framework.
Securities Transaction Tax and stamp duty will also continue to be levied on a delivery basis.
The change therefore concerns how eligible cash obligations are adjusted, rather than changing the underlying securities settlement process.
When Will the New Rules Take Effect?
The new framework will come into force on April 1, 2027. SEBI has asked the Association of Mutual Funds in India (AMFI) to formulate implementation standards in consultation with relevant market participants.
Asset management companies, custodians, stock exchanges and clearing corporations will need to make the required changes to their systems and processes.
AMCs and custodians must also jointly confirm their system readiness before implementation.
The settlement arrangement between custodians and clearing corporations will remain unchanged.
Clearing corporations will continue settling obligations at the clearing-member or custodian level under the existing framework.
For mutual fund investors, the change is mainly intended to improve the operational efficiency of schemes and reduce temporary cash requirements.
It does not, by itself, change a scheme’s investment objective, portfolio strategy or the returns investors receive.
