Sebi plans net settlement mechanism for mutual fund cash trades

The Securities and Exchange Board of India (Sebi) has proposed introducing net settlement of cash market trades for mutual funds, marking an expansion of a facility already granted to foreign portfolio investors earlier this year.

Under the proposed mechanism, mutual funds would be able to settle their equity trades on a net basis rather than on an individual trade-by-trade basis. This would allow fund managers to offset their buy and sell positions, reducing the overall cash outlay required for settlement and improving operational efficiency.

The facility, which Sebi piloted with foreign portfolio investors, has demonstrated benefits in reducing settlement costs and administrative burden. Extending this arrangement to domestic mutual funds would bring greater parity between different categories of market participants and allow Indian fund managers to operate with greater flexibility.

The proposal is expected to streamline back-office operations for mutual fund houses and potentially reduce transaction costs, which could have downstream benefits for investors. Sebi's move reflects the regulator's ongoing efforts to modernize market infrastructure and align practices with global standards for institutional investors.

The extension of net settlement to mutual funds is part of broader regulatory initiatives aimed at making India's capital markets more efficient and competitive. The regulator is expected to issue formal guidelines following consultations with market participants.