SEBI proposes net settlement of cash obligations for mutual fund schemes

The proposal comes after SEBI received representations from market participants highlighting that mutual fund schemes may face temporary liquidity requirements and operational inefficiencies

New Delhi, September 3, 2026: Markets regulator Sebi on Thursday proposed permitting net settlement of funds for transactions undertaken by mutual fund schemes in the cash market, while continuing settlement of securities on a gross basis, aiming to reduce temporary liquidity requirements.Sebi Proposal"The proposal is intended to facilitate ease of doing business, improve settlement efficiency and reduce temporary liquidity requirements for mutual fund schemes, while ensuring that existing safeguards relating to delivery-based settlement, scheme-wise accounting, valuation and investor protection remain unaffected," Sebi said in its consultation paper.The proposal comes after Sebi received representations from market participants highlighting that mutual fund schemes may face temporary liquidity requirements and operational inefficiencies because fund obligations in the cash market are effectively met on a gross basis at the scheme level.These issues may become more pronounced during index rebalancing, which requires portfolio changes in passive funds and large investor subscriptions or redemptions.This follows Sebi allowing the net settlement of funds framework for Foreign Portfolio Investors (FPIs).Net Settlement FrameworkIn its consultation paper, Sebi has "proposed to permit net settlement of funds for outright buy or sell transactions undertaken by a mutual fund scheme in the cash market executed on a recognised stock exchange".It has been recommended that net settlement of funds shall be allowed only at the level of an individual mutual fund scheme. Further, no netting should be permitted across different schemes of the same mutual fund.The asset management company (AMC) and custodian should ensure that the proposed framework does not affect scheme-wise accounting, valuation, daily NAV (net asset value) computation, segregation of securities and funds; or unit-holder interest.Purchase And Sale Obligations"In case the value of outright sale transactions is less than the value of outright purchase transactions, the residual amount in respect of such outright purchase transactions, together with purchase obligations arising from non-outright transactions, shall be funded by the concerned mutual fund scheme," Sebi proposed."In case the value of outright sale transactions exceeds the value of outright purchase transactions, such excess outright sale amount shall not be adjusted against purchase obligations arising from non-outright transactions," it added.Implementation StandardsThe regulator proposed that AMFI should formulate implementation standards in consultation with custodians, recognised clearing corporations, recognised stock exchanges and other relevant stakeholders.Also Watch: SEBI Approves IPO Plans Of Jio Platforms, Paras Healthcare, Bharat PET And Four Other CompaniesThe implementation standards may cover -- treatment of partially confirmed/rejected trades; file formats and reporting; reconciliation processes; exception handling; audit trail requirements; and scheme-wise controls.The Securities and Exchange Board of India (Sebi) has sought public comments till September 24 on the proposals.(Disclaimer: Except for the headline, this article has not been edited by FPJ's editorial team and is auto-generated from an agency feed.)

The proposed framework would allow mutual fund schemes to net fund obligations from eligible outright purchases and sales, potentially reducing temporary liquidity and funding requirements while securities would continue to settle on a gross basis.