The Securities and Exchange Board of India (SEBI) issued a circular on 5 November 2026 laying out a framework for net settlement of funds for transactions that mutual fund schemes undertake in the cash market. According to Economic Times, the framework is set to take effect on 1 April 2027.
What happened
The circular is numbered HO/24/13/(1)2026-IMD-POD-2/I/25242/2026. It covers how money is settled when mutual fund schemes buy and sell shares in the cash market, where trades are paid for and delivered shortly after they are made.
Net settlement means that a scheme’s buy and sell payments are offset, so it pays or receives only the difference instead of paying for every purchase and receiving for every sale separately. Gross settlement means each obligation is settled in full.
Mint reported that the move changes how fund obligations for eligible mutual fund transactions are treated, but does not alter the requirement that securities are settled on a gross basis. So the shares themselves still move in full; only the cash side is netted.
Key features reported
- Economic Times reported that netting was earlier available only to foreign portfolio investors.
- Eligible transactions will be limited to sales or purchases of a specific security.
- Netting across different schemes will remain prohibited.
The report said the aim is to streamline funding requirements and improve market efficiency.
What it means for you
If you invest in mutual funds, you will not see a change in how you buy, redeem or hold units. The change is in back-end settlement between a fund scheme and the market. Lower cash needs for settlement could, in principle, make it easier for fund managers to manage liquidity, though the sources do not quantify any effect on returns or costs.
If you are an NRI investing in Indian mutual funds, the framework does not change the rules that apply to your investments.
Background
Net settlement for cash market trades was, according to Economic Times, available only to foreign portfolio investors until now. The new framework extends a version of it to mutual fund schemes, with limits. SEBI is the regulator of India’s securities markets and of mutual funds.
What to watch next
Watch for how fund houses and market infrastructure institutions prepare ahead of the 1 April 2027 start date, and for any further operational details SEBI publishes.
