Sebi relaxes cash market settlement rules for mutual funds

Mumbai: The Securities and Exchange Board of India (Sebi) on Thursday permitted mutual fund schemes to net their fund obligations arising from outright purchase and sale transactions in the cash market, a move that would reduce temporary funding requirements and improve settlement efficiency.

The new rules, which will come into effect from April 1, 2027, will allow net settlement of funds at the level of an individual mutual fund scheme, while settlement of securities will continue on a gross basis.

An outright transaction would mean either a purchase or a sale of a security, but not both, by a mutual fund scheme during the same settlement cycle.


If a scheme undertakes both purchase and sale transactions in the same security during a settlement cycle, those trades will be treated as non outright transactions and would not qualify for net settlement.

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Sebi said that netting would be permitted only within the same mutual fund scheme and settlement cycle. Fund obligations cannot be adjusted across different schemes of the same mutual fund, and inter scheme funding would not be allowed.

Where the value of outright sale transactions is lower than that of outright purchases, the scheme would have to fund the residual obligation. Similarly, excess proceeds from outright sales cannot be adjusted against non- outright purchase obligations, which would continue to be funded separately on a gross basis.

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The regulator said securities settlement will continue on a gross basis between the mutual fund scheme and its custodian. Securities Transaction Tax and stamp duty would also continue to be levied on a delivery basis.