SEBI Clears Net Settlement Framework For Mutual Fund Cash Market Transactions, Effective From 1 April 2027

The stock market regulator has allowed mutual funds to settle eligible cash market trades on a net basis. The move is expected to lower funding needs and simplify the settlement process. The new framework will take effect on 1 April 2027.

SEBI Extends Net Settlement Facility To Mutual Funds

SEBI announced the decision on 5 November 2026. The move extends a facility already introduced for foreign portfolio investors (FPIs) earlier this year.

Under net settlement, eligible transactions can be settled by offsetting payment obligations against receivables. This is intended to reduce the funds required for settling cash market trades and improve operational efficiency.

The regulator expects the framework to make settlement processes more efficient for mutual fund schemes.

Eligibility Criteria For Net Settlement

SEBI has specified that only eligible purchase or sale transactions in a particular security will qualify for net settlement. A mutual fund scheme cannot use the facility if it both purchases and sells the same security.

The regulator has also prohibited netting between different schemes managed by the same mutual fund. Each scheme must settle its eligible transactions independently.

These conditions are intended to ensure that net settlement remains restricted to qualifying transactions within individual mutual fund schemes.

New Settlement Rules Effective From 1 April 2027

The framework will become operational on 1 April 2027. Mutual fund schemes will then be permitted to use net settlement for eligible cash market transactions.

The change is expected to reduce temporary funding needs and streamline settlement operations. It also brings mutual funds within a facility previously made available to foreign portfolio investors.

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