SEBI proposes net settlement of funds for outright cash-market trades of mutual fund schemes; securities to stay gross. Comment window closed on 24 September 2026
A SEBI consultation paper issued on 3 September 2026 proposes to let a mutual fund scheme net its fund obligations for outright buy and sell transactions in the cash market, as already permitted for FPIs. Netting would be only at scheme level, securities would continue to settle gross, and STT and stamp duty would stay on delivery basis. Comments were due by 24 September 2026; the window has closed.
Key facts
- Published
- 3 September 2026
- Section
- SEBI
- What it is
- Comments invited
- In force
- Proposal only; comments were due by 24 September 2026 (window closed)
- Who it affects
- Mutual funds, asset management companies, trustees, custodians, clearing corporations, stock exchanges and stock brokers
In 30 seconds
- At present all institutional transactions are grossed at custodian level and obligations are met on a gross basis.
- Proposed: net settlement of funds for outright transactions of a mutual fund scheme in the cash market on a recognised stock exchange.
- “Outright transaction” means either a purchase or a sale, but not both, in a security in a settlement cycle.
- A security with both purchase and sale in the same settlement cycle is excluded from netting and settles gross.
- Netting only at the level of an individual scheme — never across schemes of the same mutual fund.
- SEBI permitted the same for FPIs by a circular dated 24 April 2026.
हिंदी में सार
SEBI ने 3 सितंबर 2026 के कंसल्टेशन पेपर में प्रस्ताव रखा है कि म्यूचुअल फ़ंड स्कीम कैश मार्केट में अपने outright ख़रीद और बिक्री सौदों के पैसों का निपटान net आधार पर कर सके, जैसा FPI के लिए 24 अप्रैल 2026 के सर्कुलर से पहले ही मंज़ूर है। नेटिंग सिर्फ़ एक ही स्कीम के भीतर होगी, शेयरों की डिलीवरी gross ही रहेगी और STT व स्टांप ड्यूटी में कोई बदलाव नहीं होगा। यह सिर्फ़ प्रस्ताव है; टिप्पणी की आख़िरी तारीख़ 24 सितंबर 2026 थी, जो निकल चुकी है।
Before and now
Fund obligations are met on a gross basis: a scheme arranges funds for purchases independently of sale proceeds receivable in the same settlement cycle.
Proposed (not decided): outright purchases and outright sales of the same scheme may be netted to arrive at its net fund obligation; securities still settle gross.
What the paper is about
SEBI issued a consultation paper on 3 September 2026 proposing to permit net settlement of funds for transactions undertaken by mutual fund schemes in the cash market, while continuing settlement of securities on a gross basis. This is a proposal for public comment, not a decision. Comments were to be submitted latest by 24 September 2026; that window has closed.
The present position
SEBI’s Master Circular for Stock Exchanges and Clearing Corporations dated 30 December 2024 provides that no institutional investor may do day trading. All transactions are grossed at the custodian’s level and obligations are fulfilled on a gross basis. A mutual fund scheme therefore has to arrange funds for its purchases independently of the sale proceeds it will receive in the same settlement cycle.
SEBI has received representations that this creates temporary liquidity requirements and operational inefficiencies, more so during index rebalancing in passive funds and large investor subscriptions or redemptions. The Mutual Fund Advisory Committee also recommended net settlement for domestic institutional investors in line with FPIs, for whom SEBI permitted it by a circular dated 24 April 2026.
What is proposed
- Outright transactions only. Securities in which the scheme has only a purchase or only a sale in a settlement cycle may be netted to arrive at the scheme’s net fund obligation.
- Non-outright excluded. Where the scheme has both bought and sold the same security in the same settlement cycle, those transactions continue to settle gross.
- Securities stay gross. Netting is only for fund settlement. STT and stamp duty continue on delivery basis.
- Scheme-level only. No netting across different schemes of the same mutual fund, and no cross-scheme adjustment of obligations.
- Residual obligations. If outright sales are less than outright purchases, the scheme funds the balance. If outright sales exceed outright purchases, the excess is not adjusted against purchase obligations of non-outright transactions. Any external funding must comply with the borrowing provisions for mutual funds.
- Implementation standards to be formulated by AMFI in consultation with custodians, clearing corporations, stock exchanges and other stakeholders.
SEBI’s illustration
| Security | Buy value (₹) | Sell value (₹) | Treatment |
|---|---|---|---|
| A | 1,000 | Nil | Outright purchase |
| B | 1,000 | 2,000 | Non-outright |
| C | Nil | 2,000 | Outright sale |
| Funds | Pay-in (₹) | Pay-out (₹) |
|---|---|---|
| Current practice — gross | 2,000 | 4,000 |
| Proposed — net settlement of funds | 1,000 | 3,000 |
A and C are netted; B continues to settle gross.
In the draft circular
- AMCs, mutual funds and custodians to have systems for scheme-wise identification of outright, non-outright, gross and net obligations; the custodian to keep a clear audit trail.
- Trustees to review implementation and ensure it is in the interest of unit-holders.
- Settlement between custodians and clearing corporations remains unchanged.
- AMCs and custodians to jointly confirm system readiness. The implementation date is left blank in the draft.
What to note
Until a final circular is issued, mutual fund schemes continue to settle fund obligations on a gross basis.
Questions and answers
Can mutual fund schemes now settle funds on a net basis?
No. SEBI has only proposed it in a consultation paper issued on 3 September 2026. At present institutional transactions are grossed at custodian level and obligations are fulfilled on a gross basis.
What is an outright transaction?
Either a purchase or a sale transaction, but not both, in a security in a settlement cycle undertaken by a mutual fund scheme. If the scheme has both bought and sold the same security in the same settlement cycle, that security is treated as non-outright for that cycle.
Would netting be allowed across schemes?
No. The proposal allows netting only at the level of an individual mutual fund scheme. No netting or adjustment of obligations is permitted across different schemes of the same mutual fund.
Would securities settlement, STT or stamp duty change?
No. Settlement of securities would continue on a gross basis, and STT and stamp duty would continue to be levied on delivery basis, as applicable.
Is the comment window still open?
No. Comments were to be submitted latest by 24 September 2026.
Published 3 September 2026. Updated 4 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.