Market regulator Securities and Exchange Board of India (SEBI) on Thursday issued a circular allowing mutual fund schemes to undertake net settlement of funds for outright transactions in the cash market.
An outright transaction refers to buying a particular stock or selling a particular stock, but not doing both in the same settlement cycle. SEBI's move is aimed at improving operational efficiency and reducing funds' temporary funding requirements.
The new framework, which will come into effect from April 1, 2027, will allow mutual fund schemes to offset fund obligations arising from eligible outright purchase and sale transactions within the same scheme and settlement cycle. Settlement of securities, however, will continue on a gross basis.
Under the revised framework, netting will be permitted only at the level of an individual mutual fund scheme. There will be no adjustment of obligations between different schemes of the same mutual fund or across portfolios.
Currently, institutional investors are not permitted to square off their transactions intraday. Consequently, their cash market transactions are required to be delivery-backed and settled on a gross basis at the custodian or client level.