SEBI lets mutual fund schemes net cash market fund settlement from 1 April 2027

The Securities and Exchange Board of India (SEBI) issued a circular on 5 November 2026 allowing mutual fund schemes to settle the money leg of their cash market trades on a net basis, scheme by scheme. The framework comes into force on 1 April 2027. Shares and other securities will still be settled on a gross basis.

What Happened

At present, institutional investors such as mutual funds cannot square off trades within a day, and their cash market trades must be delivery-backed and settled gross, SEBI said. Under the new framework, a scheme may net the funds it pays for outright purchases against the funds it receives from outright sales in the same settlement cycle.

SEBI defined an outright transaction as either a purchase or a sale, but not both, in a security in the same settlement cycle. If a scheme both buys and sells the same security in that cycle, those trades are excluded from netting and settled gross. The framework does not cover derivatives, securities lending and borrowing, or short sales.

Netting is allowed only within the same scheme. The circular bars netting across schemes of the same fund house and any adjustment of obligations between schemes. If outright purchases exceed outright sales, the scheme funds the balance. Securities Transaction Tax and stamp duty will still be charged on a delivery basis.

SEBI said it already permitted similar net settlement of funds for foreign portfolio investors through a circular dated 24 April 2026, to be implemented by 31 December 2026.

What It Means

SEBI said the change aims to improve operational efficiency, reduce temporary funding needs and improve settlement efficiency for mutual fund schemes. For unit-holders, the circular requires asset management companies and custodians to ensure that netting does not affect scheme-wise accounting, NAV computation, asset allocation, investment limits or unit-holder interest. Custodians must keep an audit trail, and trustees must review the framework's implementation in unit-holders' interest.

The Association of Mutual Funds in India (AMFI) will frame implementation standards with clearing corporations, stock exchanges and custodians, covering file formats, timelines, reconciliation and treatment of rejected trades. Fund houses and custodians must jointly confirm system readiness before the framework starts.

Source: SEBI circular