SEBI has permitted mutual fund schemes to conduct net settlements in eligible stock market transactions. Learn what this new rule, which will come into effect on April 1, 2027, means and how it will impact investors.
Mutual Funds New Rules: SEBI's new rule
If you invest in mutual funds, there's a major market change you need to know about. SEBI has allowed mutual fund companies to account for stock market transactions on a net basis. This new rule will come into effect on April 1, 2027. Its purpose is to simplify the financing of mutual fund schemes and improve the settlement process.
Currently, institutional investors are required to pay for share purchase and sale transactions separately, i.e., on a gross basis. Under the new rules, the purchase and sale proceeds can be adjusted, subject to certain conditions. However, this facility will not apply to all transactions.
Net settlement means that the amount of a transaction involving the purchase and sale of eligible shares within the same mutual fund scheme can be deducted, and the remaining amount can be settled. Suppose a mutual fund scheme buys shares of Company A for ₹1,000 and sells shares of Company C for ₹2,000 on the same day. Under the current system, the fund would pay ₹1,000 for the purchase and receive ₹2,000 for the sale.
Under the new rule, these two eligible transactions can be adjusted. This means the fund will have to pay ₹1,000 and receive the difference of ₹1,000. This will eliminate the need for fund houses to temporarily raise additional funds. This is why SEBI views this decision as a step that will simplify operational functions and fund management.
Will the facility be available on every share?
SEBI has also set some conditions for net settlement. Most importantly, this facility is only available within a single mutual fund scheme and within a single settlement cycle. Funds from two different schemes of the same mutual fund cannot be adjusted.
Additionally, if a scheme buys and sells shares of a company within the same settlement cycle, both trades will not be eligible for net settlement. Such trades will be accounted for on a gross basis, as before. Transactions involving derivatives, securities lending and borrowing, and short selling are also excluded from this facility.
