SEBI Permits Net Settlement of Mutual Fund Transactions From April 2027

Key Takeaways

• SEBI issued a circular on 5 November 2026 permitting net settlement of eligible fund obligations arising from cash-market transactions undertaken by mutual fund schemes.
• The new framework will take effect on 1 April 2027, with netting restricted to eligible obligations within an individual scheme.
• Securities settlement will remain on a gross basis, and mutual funds will not be permitted to offset obligations across different schemes.

SEBI Announces Revised Settlement Framework

The Securities and Exchange Board of India (SEBI) has approved a new framework allowing mutual fund schemes to settle eligible cash-market fund obligations on a net basis from 1 April 2027.

The regulator issued the circular on Thursday, 5 November 2026, introducing changes to the settlement process for qualifying transactions undertaken by mutual fund schemes.

The framework is intended to reduce temporary funding requirements that arise during the settlement of securities transactions.

Under the revised mechanism, eligible obligations may be netted within the same scheme and settlement cycle, subject to the conditions specified by the regulator.

What Changes Under the New Rules?

Mutual fund schemes undertake purchases and sales of securities as part of their portfolio management activities.

These transactions generate settlement obligations involving the transfer of securities and funds.

The new framework allows eligible fund obligations to be settled on a net basis, reducing the need to arrange funding for certain offsetting transactions.

Importantly, the facility is subject to transaction-level restrictions. It should not be interpreted as permission to offset every purchase against every sale in a scheme's portfolio.

The regulator has also maintained separate treatment for securities settlement, which will continue on a gross basis.

Netting Across Different Schemes Remains Prohibited

A central restriction is that settlement obligations belonging to different mutual fund schemes cannot be combined.

For example, an asset management company operating several equity funds cannot use the netting framework to offset the settlement obligations of one scheme against those of another.

Each scheme must continue to maintain its independent financial and operational records.

This restriction preserves the separation between investor assets held under different schemes, even where the same AMC manages those portfolios.

Implementation Begins in April 2027

The new rules will become applicable from 1 April 2027.

SEBI has identified market infrastructure institutions and industry participants, including clearing corporations, stock exchanges, custodians and mutual fund houses, as relevant parties in implementing the framework.

The Association of Mutual Funds in India will coordinate the development of operational standards with the concerned institutions.

The changes apply to the settlement infrastructure used by mutual fund schemes. They do not directly revise the redemption timelines applicable to individual mutual fund investors.

The framework may improve operational efficiency for eligible securities transactions, although any resulting cost savings or performance effects will depend on actual implementation.