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Sebi proposes net cash settlement for mutual fund stock trades
The proposal would reduce temporary liquidity needs by letting mutual fund schemes net only cash obligations, while keeping securities delivery settlement on a gross basis.
India’s market regulator Sebi has proposed allowing mutual fund schemes to settle the cash side of certain stock-market transactions on a net basis, according to a consultation paper issued on Thursday.
Under the current framework, mutual fund trades settle on a gross basis, meaning a scheme must arrange purchase funds separately even if it expects inflows from sales in the same settlement cycle.
The proposed change would apply to outright transactions, where a scheme either buys or sells a given security during a settlement cycle but does not do both. Sebi’s example shows that if eligible sales worth ₹ 90 crore offset purchases worth ₹ 100 crore, the scheme would settle a net cash requirement of ₹ 10 crore instead of funding the full purchase amount.
Sebi said the netting would cover only cash obligations, not securities, which would continue to be settled on a gross, delivery-based basis. It would also be limited to netting within a single mutual fund scheme, with no offsetting across different schemes, and the AMC, mutual fund, and custodian would have to ensure scheme-wise accounting, daily NAV calculation, asset allocation, investment limits, and unit-holder interests are not affected.