SEBI lets mutual funds net off purchases and sales for settlement from April 1, 2027

SEBI has changed the way mutual fund companies account for purchases and sales in the stock market. The new rule will come into force on April 1, 2027.

Under it, purchases and sales may be entered on a net basis. The aim is to make funding easier for mutual fund schemes and to improve the settlement process.

At present, institutional investors have to pay separately for share purchases and sales, that is, on a gross basis. Under the new rule, the amounts from purchases and sales can be adjusted against each other, subject to certain conditions. However, the facility will not apply to every kind of transaction.

Net settlement means that, within a single mutual fund scheme, the amounts for eligible shares bought and sold can be offset, and only the remaining balance settled. Suppose a scheme buys shares of Company A for Rs 1,000 and sells shares of Company B for Rs 2,000 on the same day. Under the current system, the fund would have to pay Rs 1,000 for the purchase and would receive Rs 2,000 for the sale.

Under the new rule, these two eligible trades can be adjusted. The fund would pay Rs 1,000 and receive the difference of Rs 1,000. As a result, fund houses will not need to hold extra money for a short period. For this reason, SEBI regards the decision as one that eases operations and fund management.

SEBI has also laid down conditions for net settlement. The most important is that the facility will be available only within a single mutual fund scheme and within a single settlement cycle. Money from two different schemes of the same mutual fund cannot be adjusted against each other.

In addition, if a scheme both buys and sells shares of the same company in the same settlement cycle, neither trade will be eligible for net settlement. Such trades will be counted on a gross basis as before. Trades involving derivatives, swaps of securities and short selling have also been kept out of the facility.