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Sebi Proposes Netting Mutual Fund Cash Obligations to Ease Liquidity
Sebi wants mutual funds to have an easier way to arrange money for some stock-market trades.
Today, a fund generally has to pay for purchases separately, even when it is also receiving money from sales.
Under the proposal, eligible purchases and sales could be combined to calculate one final cash amount.
For example, buying securities worth ₹100 crore and selling ₹90 crore could leave only ₹10 crore to arrange.
This would apply only when the fund buys or sells a security, not when it does both during the same settlement period.
The securities themselves would still be delivered normally and settled on a gross basis.
Netting would be allowed only inside one mutual fund scheme, not between different schemes.
Sebi says the change could reduce temporary cash pressure during index changes or large investor inflows and outflows.
Sebi proposed allowing mutual fund schemes to settle eligible cash obligations on a net basis.
The proposal would offset eligible purchases against eligible sales within the same settlement cycle.
Securities would still be delivered and settled on a gross basis.
Transactions involving both purchases and sales of the same security would remain subject to gross settlement.
Public comments are invited by September 24, with safeguards for accounting, NAVs and unit-holder interests.
- Who
- The Securities and Exchange Board of India, mutual fund schemes, asset management companies and custodians.
- What
- A proposal to allow net settlement of eligible mutual fund cash-market obligations while keeping securities settlement gross and delivery-based.
- Where
- The proposal concerns cash-market transactions executed through recognised stock exchanges in India.
- When
- The consultation paper was issued on Thursday, and public comments are invited by September 24.
- Why
- To reduce temporary liquidity requirements and improve settlement efficiency, particularly during index rebalancing and periods of large subscriptions or redemptions.
Key facts
- Eligible transactions
- Outright purchases or outright sales by a mutual fund scheme through a recognised stock exchange.
- Settlement treatment
- Eligible cash obligations could be netted within the same settlement cycle, while securities would remain settled gross and on a delivery basis.
- Excluded transactions
- Purchases and sales of the same security by the same scheme during one settlement cycle would not qualify for netting.
- Netting limit
- Netting would be permitted only at the individual scheme level and not across schemes managed by the same asset management company.
- Example
- A scheme buying securities worth ₹100 crore and making eligible sales worth ₹90 crore could settle a net cash requirement of ₹10 crore.
- Safeguards
- The asset management company, mutual fund and custodian must protect scheme-level accounting, daily NAV calculations, asset allocation, investment limits and unit-holder interests.
- Public consultation
- Sebi has invited comments on the proposal by September 24.
Sources
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