Securities and Exchange Board of India has suggested a new settlement framework for mutual fund schemes. Under this plan, schemes will be allowed to net settle cash market fund transactions while continuing gross settlement for securities. The move is aimed at reducing liquidity pressures during index rebalancing or heavy inflows and outflows. It is also expected to improve settlement efficiency without affecting investor safeguards.
The proposal permits netting only within a single scheme. Cross scheme netting will not be allowed. Securities will continue to settle individually to ensure delivery based safeguards remain intact. Mutual funds will still follow scheme wise accounting, valuation, NAV computation and segregation of securities and funds.
If purchases exceed sales, schemes must provide the difference. Excess sales cannot be used to offset purchase obligations from non outright transactions. Asset management companies and custodians will be responsible for compliance and proper execution.
The Association of Mutual Funds in India will prepare implementation standards in consultation with custodians, clearing corporations and exchanges. These standards will cover reconciliation, audit trails and exception handling.
The regulator has invited public comments on the proposal until September 24. The step builds on SEBI’s earlier decision allowing net settlement for foreign portfolio investors.