India's securities regulator has allowed net settlement of cash obligations for eligible mutual-fund trading, with the framework scheduled to take effect on 1 April 2027. The 5 November circular changes how qualifying purchases and sales can be funded within the same mutual-fund scheme and settlement cycle. It does not create general permission for institutional day trading or change gross delivery of securities.[1]
Previously, institutional transactions were generally delivery-backed and settled on a gross funding basis at the client or custodian level. The new scheme-level arrangement can offset funds owed on qualifying outright buys against funds receivable from qualifying outright sales. For a fund buying and selling separate securities on the same settlement date, that may reduce the temporary cash buffer needed before final settlement.[1]
Eligibility is narrower than simple buy-minus-sell arithmetic. A qualifying outright transaction is a purchase or a sale in a given security during a settlement cycle, not both. If a scheme buys and sells the same security in that cycle, those transactions are excluded from the permitted cash netting. Derivatives, securities lending, short-sale-related trades and other transactions outside the defined scope remain excluded.[1]
Scope of the mutual-fund settlement change
| Evidence or rule | Verified detail |
|---|---|
| Circular issued | 5 November 2026 |
| Effective date | 1 April 2027 |
| Eligible obligations | Outright buys and sells within the same scheme and cycle |
| Securities transfers | Remain gross |
| Across different schemes | No offset permitted |
| Same-security buy and sell | Excluded from eligible outright cash netting |
| Illustrative net cash need | ₹100m purchases minus ₹70m eligible sales = ₹30m |
Netting must remain inside one mutual-fund scheme and one settlement cycle. An asset manager cannot offset a purchase by Scheme A against a sale by Scheme B merely because both are under the same manager. Nor can excess proceeds on an eligible outright sale automatically finance unrelated non-outright obligations. These constraints preserve the separation of fund assets and unit-holder interests.[1]
Take a purely illustrative scheme with eligible outright purchases of ₹100 million and eligible outright sales of ₹70 million in different securities during the same cycle. A ₹30 million net cash requirement illustrates the potential funding benefit, while the securities in both legs continue to settle gross. This is not a published estimate of savings or a relaxation of risk and settlement safeguards.[1]
SEBI instructs asset-management companies, custodians, brokers, exchanges and clearing corporations to update systems. AMCs and custodians must reconcile scheme-level books and confirm readiness; trustees and industry implementation standards remain part of the control framework. India had separately announced a comparable mechanism for qualifying foreign portfolio investors earlier in 2026, with a different implementation deadline.[1]
The immediate news is approval of the design; operational use is scheduled for April 2027. Any claim of realised liquidity savings before that implementation would be premature. The definitive distinction for trading and clearing desks is cash netting within a qualified account, not netting of securities deliveries or across unrelated clients. Any promised liquidity benefit must be tested against eligible outright trades; including excluded same-security round trips would exaggerate the cash available for netting.[1]
Sources & further reading
- Framework for net settlement of funds for transactions undertaken by mutual fund schemes in cash market SEBI, circular reproduced by TaxGuru · 5 Nov 2026 · Accessed 5 Nov 2026