SEBI Allows Mutual Funds to Net Cash Market Payments From April 2027

India’s capital market regulator is changing how mutual funds settle certain stock market transactions. The Securities and Exchange Board of India (SEBI) has introduced a framework for net settlement of funds by mutual fund schemes.

The change will take effect on April 1, 2027. It aims to improve settlement efficiency and reduce temporary funding requirements for asset managers.

Under the new framework, eligible purchase and sale transactions can be adjusted against each other. Mutual funds will then pay or receive the net amount. However, the actual transfer of securities will continue on a gross basis.

The reform could improve cash management across mutual fund operations. It also introduces clear limits to protect scheme-level accounting and investor interests.

What SEBI Has Changed

SEBI issued the circular on November 5, 2026. It allows net settlement of funds for eligible outright transactions in the cash market.

An outright transaction means a purchase or a sale of a particular security during the same settlement cycle. A scheme cannot buy and sell the same security within that cycle and still qualify for netting.

The distinction is important. The framework does not permit unrestricted adjustment of all trading obligations.

For example, a mutual fund scheme may purchase shares worth ₹1,000 and sell another security worth ₹2,000. Under the new rules, eligible fund obligations can be adjusted. The scheme’s net funding requirement falls to ₹1,000.

The securities themselves will still settle separately on a gross basis.

How the New Settlement System Works

The earlier arrangement required institutional investors to settle cash obligations on a gross basis. This meant schemes had to fund eligible purchase obligations without the benefit of the new netting arrangement.

SEBI’s framework changes the treatment of qualifying outright transactions.

Consider a scheme that undertakes three transactions during one settlement cycle:

• It purchases Security A for ₹1,000.
• It purchases and sells Security B for ₹1,000 and ₹2,000 respectively.
• It sells Security C for ₹2,000.

Security A qualifies as an outright purchase. Security C qualifies as an outright sale. Security B does not qualify because the scheme both bought and sold it.

The eligible purchase and sale obligations can therefore be netted. The fund’s payment obligation falls from ₹2,000 to ₹1,000. The gross securities settlement remains unchanged.

This example illustrates how netting can reduce the cash required for settlement without changing the delivery-based nature of institutional trading.

Scheme-Level Restrictions Remain Strict

SEBI has placed important safeguards around the new facility.

Netting will operate only within an individual mutual fund scheme. A fund house cannot use the surplus of one scheme to meet another scheme’s obligations.

The regulator has also prohibited adjustments across different schemes or portfolios. This restriction protects the financial separation of individual schemes.

Transactions involving derivatives, securities lending and borrowing, short sales and other excluded categories will not qualify.

Where a scheme buys and sells the same security during one settlement cycle, those transactions will also remain outside the netting facility.

Non-outright purchase obligations must continue to receive separate funding on a gross basis. Excess proceeds from eligible outright sales cannot be used to meet those obligations.

These conditions limit the facility to clearly defined transactions.

What It Means for Asset Management Companies

The new framework could improve treasury planning for asset management companies (AMCs). It may reduce the amount of temporary cash required for eligible market transactions.

Lower funding requirements can improve operational efficiency. They may also help custodians and fund managers manage settlement obligations more effectively.

However, the change requires operational preparation. AMCs and custodians must identify eligible transactions and calculate net obligations at the scheme level.

They must also maintain records of gross obligations, net obligations and excluded transactions. Clear audit trails will be necessary.

Trustees must review implementation and ensure that the framework protects unit-holder interests.

The Association of Mutual Funds in India (AMFI) will formulate implementation standards with clearing corporations, stock exchanges, custodians and other stakeholders.

These standards will cover reporting formats, reconciliation, confirmation timelines and the treatment of rejected or modified trades.

Investor Protection and Settlement Discipline

The new facility does not change the delivery-based settlement requirement for institutional investors. Securities will continue to settle on a gross basis.

Securities Transaction Tax and stamp duty will also continue to apply as required. The netting facility will not change their delivery-based treatment.

SEBI has instructed AMCs and custodians to ensure that the process does not affect scheme accounting or net asset value calculations.

Investment limits and asset allocation rules must also remain intact. The regulator has emphasised the protection of unit-holder interests.

These safeguards are important because mutual fund schemes manage money on behalf of investors. Any settlement reform must preserve the financial separation of schemes.

Implementation Begins in April 2027

The framework will become effective on April 1, 2027. Market participants now have time to prepare their systems and operational processes.

AMCs and custodians must jointly confirm system readiness before implementation. Stock exchanges and clearing corporations must also update their systems and reporting processes.

The new framework is part of a wider effort to improve India’s securities market infrastructure. In April 2026, SEBI had permitted a similar net settlement facility for eligible outright cash-market transactions by Foreign Portfolio Investors.

Extending the facility to mutual fund schemes brings another major institutional investor category within the framework.

The reform is operational rather than a change to investment rules. It does not give mutual funds permission to conduct unrestricted intraday trading or use one scheme’s money for another.

Its importance lies in making eligible cash obligations more efficient while retaining existing protections around securities delivery.

As India’s mutual fund industry expands, settlement infrastructure will become increasingly important. SEBI’s new framework addresses one part of that challenge. Its success will depend on reliable implementation, accurate reconciliation and strict scheme-level controls.