The Securities and Exchange Board of India (SEBI) has issued a framework permitting individual mutual fund schemes to settle funds on a net basis for outright transactions in stock exchanges’ cash segments from April 1, 2027. Eligible sale proceeds can offset purchase funding requirements, while securities settlement remains on a gross basis and institutional trades remain backed by delivery. The measure follows permission granted in April 2026 for foreign portfolio investors to net funds for outright cash market transactions. Netting is restricted to the same scheme and settlement cycle, with no adjustments between schemes or portfolios. Transactions in a security qualify only if the scheme buys or sells that security, but does not do both, during the cycle. Where both purchases and sales occur, that security’s transactions are excluded from netting. Each scheme must fund any residual outright purchase obligation, while non-outright purchases remain separately funded on a gross basis. Surplus outright sale proceeds cannot offset non-outright purchase obligations. Derivatives, securities lending and borrowing, and transactions related to short sales are outside the framework. Asset management companies (AMCs) and custodians must establish controls to identify eligible trades and settlement obligations without affecting separate scheme accounting, net asset value calculations or investment limits. Custodians must maintain an audit trail, and trustees must review implementation in unit holders’ interests. The Association of Mutual Funds in India will formulate implementation standards with market infrastructure providers and other stakeholders, including settlement timing, reconciliation and treatment of trade exceptions. Relevant market participants must adapt their systems, and AMCs and custodians must jointly confirm readiness before implementation.

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