Starting April 1, 2027, SEBI will allow mutual funds to offset cash payments against receipts within the same scheme. This new framework aims to improve operational efficiency and liquidity by reducing the upfront cash needed for settlements, while maintaining strict separation between different fund schemes.
The Securities and Exchange Board of India (SEBI) has announced a new rule allowing mutual fund schemes to perform 'net settlement' of their cash market obligations. This change, which is set to become effective from April 1, 2027, aims to streamline how mutual funds manage their daily transaction payments and receipts.
Currently, mutual funds often settle their stock market trades on a gross basis. This means if a fund buys shares worth 100 crore and sells shares worth 80 crore in the same settlement cycle, it must pay out the full 100 crore and wait to receive the 80 crore. Under the new framework, the fund can offset these obligations, allowing it to pay only the difference, which in this case would be 20 crore. By allowing funds to net these amounts, the regulator expects to reduce the temporary cash requirements that currently create settlement friction.
While this change offers greater flexibility, SEBI has implemented strict parameters to ensure fund safety and regulatory compliance. The facility is permitted only at the individual scheme level. This means an Asset Management Company (AMC) cannot net obligations between different schemes (for example, a large-cap fund cannot offset its obligations against a mid-cap fund). This strict separation ensures that each scheme maintains its own distinct financial identity and risk profile.
There are also specific limitations on the types of transactions that qualify. If a fund buys and sells the exact same security within a single settlement cycle, that specific transaction must still be settled on a gross basis rather than being netted. Furthermore, derivative positions, securities lending, and short-selling activities are completely excluded from this new netting framework. Additionally, the settlement of the securities themselves remains on a gross basis, ensuring that the actual transfer of shares continues to be delivery-backed and secure.
For the industry, this shift requires operational changes. Asset Management Companies and their custodial partners must upgrade their accounting infrastructure to handle these net calculations while maintaining precise audit trails. The Association of Mutual Funds in India (AMFI) has been tasked with coordinating with stock exchanges and clearing corporations to establish the necessary operational standards before the April 2027 deadline. The focus for regulators and fund houses will now shift to ensuring that these new processes are implemented without compromising the strict scheme-wise accounting that protects investor money.