Highlights
- SEBI allows net settlement for eligible mutual fund transactions.
- New settlement framework comes into effect April 1, 2027.
- Securities settlement remains unchanged; scheme-level netting restrictions apply.
Sebi Mutual Fund Regulations Latest: The Securities and Exchange Board of India (SEBI) has introduced a new framework allowing mutual fund schemes to settle eligible cash-market fund obligations on a net basis, instead of the existing gross settlement mechanism. The new rules will come into effect on April 1, 2027.
In a circular dated November 5, 2026, the market regulator said the move aims to enhance operational efficiency, reduce temporary funding requirements and improve settlement efficiency for mutual fund schemes undertaking transactions in the cash segment of stock exchanges.
What has SEBI changed for mutual funds?
Under the new framework, mutual fund schemes will be permitted to net fund obligations arising from eligible outright purchase and sale transactions within the same settlement cycle.
However, netting will be allowed only within an individual mutual fund scheme. Transactions across different schemes of the same mutual fund cannot be adjusted against each other.
The regulator defined an outright transaction as either a purchase or a sale of a particular security within the same settlement cycle, but not both.
Transactions involving both purchases and sales of the same security within a settlement cycle will be excluded from the netting framework.
Which transactions are excluded?
According to the circular, the framework will not apply to derivative transactions, securities lending and borrowing, short-sale-related transactions or any other transactions not expressly covered under the new rules.
Where outright purchase obligations exceed outright sale proceeds, the concerned mutual fund scheme must fund the remaining obligation.
Similarly, excess proceeds from outright sales cannot be adjusted against non-outright purchase obligations.
How will the new settlement system work?
SEBI provided an illustration explaining the difference between the existing gross settlement mechanism and the proposed net settlement framework.
Consider a mutual fund scheme undertaking the following transactions:
| Security | Purchase value | Sale value |
| A | Rs 1,000 | Nil |
| B | Rs 1,000 | Rs 2,000 |
| C | Nil | Rs 2,000 |
Under the existing gross settlement mechanism, the scheme would have a fund pay-in obligation of Rs 2,000 and a fund pay-out of Rs 4,000.
Under the new framework, eligible transactions in securities A and C can be netted. However, transactions in security B will remain outside the framework because the scheme has both purchased and sold that security during the same settlement cycle.
Consequently, the fund pay-in obligation would fall to Rs 1,000, while the fund pay-out would decline to Rs 3,000.
What safeguards has SEBI introduced?
The regulator has also specified that netting must not affect scheme-wise accounting, net asset value (NAV) calculations, asset allocation, investment limits or unitholder interests.
Custodians will be required to maintain clear audit trails, while trustees must review the implementation of the framework to ensure that it remains in the interests of unitholders.
Securities Transaction Tax (STT) and stamp duty will continue to be charged on a delivery basis, wherever applicable.
The framework will come into force on April 1, 2027.
SEBI has directed the Association of Mutual Funds in India (AMFI), in consultation with clearing corporations, stock exchanges, custodians and other stakeholders, to formulate implementation standards.
These standards will cover reporting requirements, settlement timelines, reconciliation mechanisms, audit trails and the treatment of rejected or modified trades.
AMCs, custodians, stock brokers, recognised stock exchanges and clearing corporations have been advised to make the necessary changes to their systems and processes before implementation.
The circular also requires AMCs and custodians to jointly confirm system readiness ahead of the implementation date.