SEBI has issued a proposal to allow mutual fund schemes to settle cash trades on a net basis, aiming to improve operational efficiency. This move intends to reduce temporary cash requirements for asset managers, similar to the facility already available to foreign investors. Public comments on the proposal are open until September 24, 2026.
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a move toward net settlement for mutual fund schemes in the cash market. This regulatory update, announced on September 3, 2026, seeks to refine how asset management companies handle their daily transaction obligations.
Currently, mutual funds settle their trades on a gross basis. This means every buy and sell order is treated as a separate transaction, requiring funds to maintain enough cash to cover the full value of purchases regardless of concurrent sales. Under the proposed net settlement framework, mutual funds would be able to offset their buy orders against their sell orders for the same security within the same settlement cycle. By allowing this netting, the regulator aims to reduce the amount of temporary cash buffers that funds must keep idle, thereby improving the overall operational efficiency of the industry.
This proposal is designed to align domestic mutual fund rules with the facility already available to Foreign Portfolio Investors (FPIs). By leveling the playing field, SEBI expects to reduce friction in the market, particularly during periods of high activity such as large-scale redemptions, subscriptions, or index rebalancing events.
To ensure market stability, the proposal includes specific safeguards. Securities will continue to settle on a gross basis, ensuring that the physical delivery of shares remains secure and transparent. Additionally, net settlement will be restricted to the level of individual mutual fund schemes to prevent cross-scheme netting, which could complicate fund-level accounting. This ensures that the operational change does not introduce risks like settlement confusion or unnecessary market volatility.
SEBI has invited public comments on this proposal until September 24, 2026. The primary benefit for the industry will be better capital utilization, as fund managers will not need to block as much cash for settlement purposes. For investors, while the change is largely operational and backend-focused, it marks a significant step toward modernizing the administrative processes that govern the mutual fund sector.