SEBI Proposes Net Settlement for Mutual Fund Transactions

The Securities and Exchange Board of India issued a consultation paper on September 3, 2026, proposing a shift to net settlement of funds for outright transactions in the cash market for mutual fund schemes. Under existing regulations, schemes are required to fund purchases independently of sale receivables within the same settlement cycle, a process that often creates liquidity pressures and forces a reliance on short-term funding during periods of high investor activity or index rebalancing.

The proposed framework would allow schemes to meet only the net cash obligation for buy or sell transactions. However, the regulator specified that securities settlement, stamp duty, and Securities Transaction Tax would continue to be handled on a gross basis. To maintain risk controls, the netting process must occur at the individual scheme level and cannot be applied across different schemes within the same mutual fund.

The Securities and Exchange Board of India has tasked the Association of Mutual Funds in India with developing implementation standards for reconciliation and audit trails. The regulator stated the proposal is intended to facilitate ease of doing business and improve settlement efficiency while keeping investor protections unaffected. Public and stakeholder comments are being accepted until September 24, 2026.