SEBI Approves Net Settlement for Mutual Funds From April 2027
The Securities and Exchange Board of India has approved a mechanism allowing mutual fund schemes to net their cash market payment obligations, easing intraday liquidity friction across domestic equity trading. The capital markets regulator issued an official circular on Thursday, granting mutual fund houses the ability to offset funds payable against funds receivable within an individual scheme during the same settlement cycle.
According to the market regulator, the net settlement framework will take effect across mutual fund schemes on April 1, 2027. The regulatory intervention is specifically tailored to outright transactions conducted within the secondary cash trading segment of recognised stock exchanges. The policy decision aims to enhance overall operational efficiency, reduce short-term borrowing costs, and eliminate temporary funding requirements for institutional asset managers.
Operational Scope and Scheme-Level Firewalls
Under the new framework, net settlement applies strictly to fund obligations, while the physical delivery and settlement of securities will continue on a gross basis.
SEBI stipulated that eligible trades must consist of outright transactions in the secondary cash market segment. An outright transaction is legally defined as either a purchase or a sale of a security during a settlement cycle, but not both simultaneously.
If an individual mutual fund scheme engages in both buying and selling the same equity security during a single settlement cycle, those specific transactions will be disqualified from netting. Such dual transactions will continue to be processed and settled entirely on a gross settlement basis to prevent speculative day-trading abuses.
Parity with Foreign Institutional Investors
The regulatory reform extends to domestic mutual funds a financial facility that the Securities and Exchange Board of India introduced for foreign portfolio investors earlier this year. Market participants had long advocated for parity between domestic mutual funds and offshore institutional investors regarding cash market clearing obligations.
By permitting mutual funds to offset gross cash liabilities within individual portfolios, asset managers can substantially minimize temporary cash overdrafts required to clear exchange trades. The regulator highlighted that offsetting buy and sell obligations within the same clearing cycle will remove redundant liquidity friction without altering risk safeguards.
Background
A November 5, 2026, regulatory directive mandates that asset management firms and custodians build infrastructure to track transaction eligibility and audit fund obligations, with trustees overseeing these processes to safeguard investor assets, according to The Tribune.