SEBI Net Settlement of Funds for Mutual Fund Schemes 2026: Cash-Market Netting from 1 April 2027

SEBI has allowed mutual fund schemes to net the fund leg of their outright trades in the cash market. The circular is titled "Framework for net settlement of funds for transactions undertaken by mutual fund schemes in cash market" — SEBI Circular No. HO/24/13/(1)2026-IMD-POD-2/I/25242/2026, dated 5 November 2026, issued by the Investment Management Department and signed by Priyanka Mahapatra, General Manager. From 1 April 2027, a scheme may net the fund pay-in and pay-out from its outright purchase and sale transactions in the cash segment, within the same settlement cycle and at the level of that individual scheme. Settlement of the securities themselves continues on a gross, delivery-backed basis. The circular is addressed to all mutual funds, AMCs, trustees and trustee companies, registered custodians, recognised clearing corporations and stock exchanges, registered stock brokers (through exchanges) and the Association of Mutual Funds in India (AMFI).

In plain business-owner language: today a scheme pays full cash for every buy and separately collects full cash for every sell, even in the same settlement cycle. From 1 April 2027, it will only fund the net difference on its outright trades — while the shares still change hands delivery by delivery.

What changed

The starting point is the Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, which stipulates that no institutional investor may do day trading — intra-day square-off — in the cash market, so institutional cash-market transactions must be delivery-backed and settled gross at custodian and client level. That rule stays: the new circular changes only the money leg, netting fund obligations for outright transactions.

SEBI had already taken the same step for foreign portfolio investors: its circular dated April 24, 2026 (No. HO/(1)2026-AFD-POD2/I/10157/2026) permitted net settlement of funds for outright transactions by FPIs, retaining gross settlement of securities, to be implemented by December 31, 2026. The November 5 circular extends equivalent treatment to mutual fund schemes from April 1, 2027.

The circular is issued under Section 11(1) of the SEBI Act, 1992, read with Regulation 84 of the SEBI (Mutual Funds) Regulations, 2026. Paragraph 4 of Annexure 3 of Chapter 1 (Trading) of the December 30, 2024 Master Circular stands modified to the extent specified; all other provisions on institutional investors, delivery-backed settlement, short selling, margining and settlement continue.

By way of background only: SEBI had put this proposal out for public comment in a consultation paper dated 3 September 2026 (comments due by 24 September 2026). The circular itself does not cite that paper — its stated background is the December 30, 2024 Master Circular and the April 24, 2026 FPI circular.

What counts as an "outright transaction"

The framework turns on one definition. An "outright transaction" means either a purchase or a sale transaction, but not both, in a security in the same settlement cycle by a mutual fund scheme. If a scheme only buys a security in a cycle, that purchase is outright; if it only sells, that sale is outright. Only outright transactions are eligible for net settlement.

Where a scheme has both purchase and sale transactions in the same security in the same settlement cycle, those transactions are non-outright for that cycle and not eligible for net settlement. This keeps the framework from becoming a back door to intra-day square-off.

Netting is confined further: only within the same scheme and the same settlement cycle — no netting across schemes, and no adjustment between schemes or portfolios. The AMC and custodian must ensure netting does not affect scheme-wise accounting, NAV computation, asset allocation, investment limits or unitholder interest.

Key changes

• Net settlement of funds, scheme by scheme. Net settlement is permitted at the level of an individual mutual fund scheme for outright cash-segment transactions, subject to the circular's conditions. The money leg may be netted; the securities leg may not.
• Securities still settle gross. Settlement of securities continues on a gross basis between the scheme and the custodian. STT and stamp duty continue to be charged on a delivery basis as applicable.
• Residual obligations stay with the scheme. If outright sales fall short of outright purchases, the scheme funds the residual. If outright sales exceed outright purchases, the excess shall not be adjusted against non-outright purchase obligations, which stay funded separately on a gross basis.
• Clear exclusions. The framework does not apply to derivative transactions, securities lending and borrowing, short-sale-related transactions, or any transaction not expressly covered.
• Operational safeguards are mandatory. AMCs and custodians must have adequate systems and controls to identify, scheme by scheme, outright and non-outright transactions, gross and net fund obligations, and securities pay-in/pay-out. Custodians must keep a clear audit trail of gross obligations, netted fund obligations and excluded non-outright transactions. Trustees must review implementation and ensure it is in unitholders' interest.
• AMFI to write the implementation standards. AMFI will formulate them with clearing corporations, exchanges, custodians and other stakeholders, covering file formats and reporting, confirmation and settlement timelines, reconciliation, treatment of rejected, unconfirmed or modified trades, cut-offs, finalisation of eligible net obligations, exception handling and the methodology for determining the same settlement cycle.
• Exchanges and clearing corporations must retool — but their settlement with custodians does not change. They must change their systems, processes, files and reporting formats. Settlement between custodians and clearing corporations is unchanged, and clearing corporations continue to settle at clearing member and custodian level.
• Joint readiness confirmation before go-live. AMCs, custodians, brokers, exchanges and clearing corporations are advised to make the necessary changes; AMCs and custodians must jointly confirm system readiness before implementation. The framework comes into force on April 1, 2027.

Old vs new: gross settlement today, net settlement from 1 April 2027

The Annexure illustration, worked through

The circular's Annexure gives a worked example showing where the saving comes from — and where it does not. A scheme trades three securities in one settlement cycle: Security A, a buy of Rs 1,000 (outright purchase); Security B, a buy of Rs 1,000 and a sell of Rs 2,000 (non-outright — the scheme both buys and sells the same security in the cycle); and Security C, a sell of Rs 2,000 (outright sale).

Under gross practice, the fund obligations are a pay-in of Rs 2,000 (buys in A and B) and a pay-out of Rs 4,000 (sells in B and C). Under net settlement, the outright purchase in A (Rs 1,000) and the outright sale in C (Rs 2,000) are netted, so the pay-in falls to Rs 1,000 and the pay-out to Rs 3,000 — while Security B's obligations continue gross. The funding requirement falls to the extent of the permitted netting; the shares still settle gross.

Two features deserve attention. First, the saving comes only from the outright legs — the non-outright security contributes nothing and its gross obligations must still be funded in full, so a scheme dominated by same-security buy-and-sell pairs will see little benefit. Second, the illustration nets a purchase in one security against a sale in another: within a scheme and a cycle, the money legs of outright trades offset each other across securities, even though the securities themselves never do.

Who is affected

• Mutual fund schemes and their unitholders. Every scheme trading in the cash segment stands to fund smaller net pay-ins when outright buys and sells coincide in a cycle. The benefit is funding efficiency, not return: netting changes the cash needed at settlement, not what the scheme owns or earns.
• Asset management companies. AMCs must build or adapt systems that identify, scheme by scheme and cycle by cycle, which trades are outright and what the gross and net fund obligations are — and jointly confirm readiness with their custodians.
• Registered custodians. Custodians sit at the centre of the new plumbing: they run the scheme-wise identification, keep a clear audit trail of gross obligations, netted obligations and excluded non-outright transactions, and keep securities settlement gross.
• Stock brokers. Brokers executing cash-market trades for mutual fund schemes must adapt their systems to the new settlement flow before April 1, 2027.
• Recognised stock exchanges and clearing corporations. Exchanges and clearing corporations must change their systems, processes, files and reporting formats, but settlement with custodians is unchanged.
• AMFI. AMFI must formulate the implementation standards with clearing corporations, exchanges, custodians and other stakeholders, covering file formats, confirmation timelines, treatment of rejected or modified trades and the methodology for determining the same settlement cycle.

What to do next: steps for AMCs, custodians and trustees

1. Map every trade to outright or non-outright, per scheme and per cycle. A trade is outright only if the scheme has no opposite-side trade in the same security in the same cycle; any buy-and-sell pair in one security stays gross.
2. Ring-fence schemes from each other. Confirm no netting, adjustment or funding crosses between schemes or portfolios, and that scheme-wise accounting, NAV computation, asset allocation and investment limits are unaffected.
3. Build the audit trail custodians must keep: for each scheme and cycle, records must show gross obligations, netted obligations and excluded non-outright transactions.
4. Price the residual correctly. Where outright sales fall short of outright purchases, the scheme funds the residual. Where they exceed purchases, do not apply the excess against non-outright purchases — fund those separately, gross.
5. Keep the excluded trades out. Derivatives, securities lending and borrowing, short-sale-related transactions and anything not expressly covered stay on gross settlement; keep them out of the netting engine.
6. Engage with AMFI's implementation standards as they are framed. The standards will settle file formats, confirmation and settlement timelines, reconciliation, treatment of rejected, unconfirmed or modified trades, cut-offs, finalisation of eligible net obligations, exception handling and the methodology for determining the same settlement cycle. Do not freeze system designs before they land.
7. Coordinate with exchanges, clearing corporations and brokers. Exchanges and clearing corporations are changing their systems, files and reporting formats. Test the end-to-end flow with each counterparty.
8. Jointly confirm readiness — and get trustee review. AMCs and custodians must jointly confirm system readiness, and trustees must review it and satisfy themselves it is in unitholders' interest. Put both on record before April 1, 2027.
9. Diarise April 1, 2027, not the circular date. The provisions come into force on April 1, 2027; nothing permits net settlement before then. The intervening months are the build and testing window.

What the circular does not cover

The following points are marked NOT CHECKED because the circular itself does not address them:

• Whether AMFI's implementation standards have been issued yet. NOT CHECKED — the circular directs AMFI to formulate the standards but does not contain them.
• The exact file formats, timelines, cut-offs and reconciliation mechanics. NOT CHECKED — these are left to the AMFI standards.
• Any change to how NAV is computed. NOT CHECKED — the circular requires netting must not affect NAV computation, but prescribes no new NAV methodology.
• Whether the framework changes scheme costs or charges. NOT CHECKED — the circular says nothing about costs, fees or charges arising from net settlement.

Do not advise on any of these four points from this article alone.

FAQs

What is SEBI's net settlement framework for mutual fund schemes?
SEBI Circular No. HO/24/13/(1)2026-IMD-POD-2/I/25242/2026 dated 5 November 2026, titled "Framework for net settlement of funds for transactions undertaken by mutual fund schemes in cash market", permits net settlement of funds at the level of an individual scheme for outright cash-segment transactions, while securities continue to settle gross.

From when does net settlement of funds for mutual fund schemes apply?
They come into force on April 1, 2027, under paragraph 14 of the circular.

What is an outright transaction under the SEBI mutual fund net settlement circular?
An outright transaction is either a purchase or a sale, but not both, in a security in the same settlement cycle by a mutual fund scheme. A scheme that both buys and sells the same security in the same cycle has non-outright transactions, not eligible for net settlement.

Do mutual fund schemes still settle securities on a gross basis?
Yes. Securities continue to settle gross between the scheme and the custodian, and STT and stamp duty continue on a delivery basis as applicable.

Can a mutual fund net fund obligations across different schemes?
No. Netting is permitted only within the same scheme and the same settlement cycle — no netting across schemes and no adjustment between schemes or portfolios.

Does the net settlement framework cover derivatives, securities lending and borrowing or short selling?
No. The framework does not apply to derivative transactions, securities lending and borrowing, short-sale-related transactions, or any transaction not expressly covered.

Related reading

• SEBI Allows Net Settlement of Funds for FPIs in Cash Market – Major Relief for Foreign Investors — the April 24, 2026 FPI circular (No. HO/(1)2026-AFD-POD2/I/10157/2026), to be implemented by December 31, 2026.
• SEBI Consultation: Net Settlement for Mutual Funds in Cash Market — SEBI's consultation paper dated 3 September 2026 proposing this framework (comments due 24 September 2026).

Sources

• Primary source: SEBI Circular No. HO/24/13/(1)2026-IMD-POD-2/I/25242/2026 dated 5 November 2026 — sebi.gov.in (official PDF)
• Circular page: SEBI legal circulars — sebi.gov.in (official circular page)
• Prior position: SEBI Circular No. HO/(1)2026-AFD-POD2/I/10157/2026 dated 24 April 2026 — net settlement of funds for outright transactions by FPIs, to be implemented by December 31, 2026 (cited in the November 5 circular).
• Background (consultation paper): SEBI consultation paper dated 3 September 2026 — sebi.gov.in (official PDF) — background only; the circular itself does not cite it.

Last verified by team: 5 November 2026, against the official SEBI circular PDF on sebi.gov.in. Every factual claim traces to that circular (and, for the prior position, to the April 24, 2026 FPI circular it cites); unaddressed points are marked "NOT CHECKED" above.