SEBI Permits Net Settlement for Mutual Fund Cash Transactions

The Securities and Exchange Board of India announced a new framework that permits mutual fund schemes to undertake net settlement of funds for outright transactions in the cash market. Effective April 1, 2027, the rule allows schemes to offset funds payable against funds receivable within the same scheme and settlement cycle to reduce temporary funding requirements and improve operational efficiency.

Under the new guidelines, an outright transaction is defined as the purchase or sale of a security, but not both, within a single settlement cycle. Transactions involving both the buying and selling of the same security must still be settled on a gross basis. While fund obligations can be netted, the settlement of securities will remain on a gross basis. The facility is restricted to individual schemes and cannot be used to adjust obligations across different portfolios or schemes.

To implement the framework, the regulator has tasked the Association of Mutual Funds in India with formulating standards in consultation with stakeholders. Additionally, asset management companies and custodians are required to establish tracking systems and audit trails to maintain oversight of the netting process.