India’s Securities and Exchange Board of India (SEBI) will let mutual fund schemes net eligible cash-market obligations from Apr. 1, 2027, reducing temporary funding needs while securities delivery continues on a gross basis. The regulator announced the rules in a circular dated Nov. 5.
Netting is limited to one scheme and one settlement cycle. For a given security, a scheme can include trades only if it buys or sells during that cycle, but not if it does both; in that case, purchases and sales of that security must both remain outside the netting calculation. Obligations cannot be combined across schemes or portfolios.
The change affects cash due on trades, while schemes and custodians will continue processing securities deliveries individually rather than offsetting them. Securities Transaction Tax and stamp duty will still apply on a delivery basis when relevant. Derivatives, securities lending and borrowing, short-sale-related trades and transactions the circular does not expressly cover are excluded.
In a Sept. 3 consultation paper, SEBI said gross settlement can require schemes to fund purchases separately from proceeds from sales in the same cycle. The regulator pointed to index rebalancing and large investor subscriptions or redemptions as periods when those cash demands may become more pronounced.
SEBI said the new arrangement is intended to streamline settlement operations and reduce schemes’ short-term funding needs. The circular does not estimate the savings. SEBI previously allowed net settlement for outright cash-market transactions by foreign portfolio investors in a circular dated Apr. 24, 2026.
The Association of Mutual Funds in India will draw up operating standards with clearing corporations, stock exchanges, custodians and other stakeholders. Before the framework begins, asset management companies and custodians must jointly confirm that their systems are ready.
