SEBI allows net settlement of funds for MFs from April

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SENSEX 79,310.01

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+ 576.00

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+ 64.00

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GOLD 144,880.00

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Move to ease funding needs, improve liquidity management and boost operational efficiency for AMCs

By Suresh P Iyengar

Updated - November 05, 2026 at 08:01 PM. | Mumbai

AMCs can offset eligible purchase and sale obligations within settlement cycles from April 2027. | Photo Credit: DHIRAJ SINGH

SEBI has allowed mutual fund schemes to adopt net settlement of funds for outright transactions in the cash market from April 2027.

The move will reduce temporary funding requirements, improve liquidity management, and enhance operational efficiency for asset management companies, according to the circular issued on Thursday.

Under the new framework, MF schemes will be allowed to net their purchase and sale fund obligations arising from eligible transactions in the same settlement cycle.

The move is expected to ease the funding requirements of MF schemes by reducing the amount of money that needs to be arranged temporarily for settling equity market transactions.

It could also improve the efficiency of fund deployment and cash management, particularly for schemes undertaking large volumes of portfolio transactions.

However, SEBI said netting will be permitted only at the level of an individual MF scheme and within the same settlement cycle. AMCs will not be allowed to adjust obligations across different schemes or portfolios of the same mutual fund.

Importantly, the regulator has retained gross settlement of securities even as it has permitted net settlement of funds.

The framework defines an outright transaction as either a purchase or a sale in a particular security during the same settlement cycle, but not both. If a scheme undertakes both purchase and sale transactions in the same security within the settlement cycle, those transactions will be treated as non-outright and will not qualify for net settlement.

This distinction is significant for fund managers, as they will continue to settle transactions that do not qualify on a gross basis.

Where outright sale proceeds are lower than outright purchase obligations, the scheme will have to fund the difference. Similarly, excess proceeds from outright sales cannot be adjusted against non-outright purchase obligations, which will continue to require separate funding.

To safeguard investors, SEBI has directed AMCs and custodians to establish systems for identifying eligible transactions, tracking gross and net fund obligations and maintaining clear audit trails. Trustees will also be required to review implementation to ensure that the framework serves unit holders' interests.

The Association of Mutual Funds in India, in consultation with stakeholders, will formulate implementation standards covering reporting, reconciliation, settlement timelines and audit requirements.

Published on November 5, 2026

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