MUMBAI: Mooting a new liquidity framework to allow scheme-level netting of cash obligations, but still limiting share delivery on gross basis, the markets watchdog Sebi is planning to allow mutual fund schemes to net their cash obligations arising from stock-market transactions, a move aimed at easing liquidity pressures on fund houses during periods of heavy portfolio churn.
In a consultation paper issued Thursday, the Securities and Exchange Board (Sebi) has proposed a new framework under which a mutual fund scheme will be allowed to offset outright purchases against outright sales across different securities within the same settlement cycle and settle only the net cash obligation.
The proposal follows Sebi's April 2026 move to provide similar settlement relief to foreign portfolio investors. Sebi's mutual fund advisory committee had also examined extending comparable relief to domestic institutional investors.Sebi has sought comments from stakeholders until September 24.
The proposal is significant for the mutual funds because they currently face gross settlement requirements even when their overall cash requirement is much lower, creating a temporary funding mismatch during events like index rebalancing or periods of large-scale subscriptions and redemptions.
However, the Sebi does not want same stock trades to get this liquidity push and has proposed to be excluded.Drawing a clear line around transactions that could resemble intraday trading, Sebi paper said “if a scheme buys and sells the same security on the same day, those obligations will not qualify for netting and will continue to be settled on a gross basis.
”The proposed netting facility will apply only to outright transactions, where a scheme is either a buyer or a seller in a particular security during the day, Sebi said.Importantly, the relaxation is restricted to the cash leg of the settlement cycle as Sebi wants securities delivery continue to take place on a gross basis.Also, the paper is clear that only scheme-level netting is permitted within an individual mutual fund scheme.
This means that a fund house will not be allowed to offset the purchase obligations of one scheme against the sale obligations of another scheme.The restriction is aimed at maintaining scheme-wise accounting and daily NAV calculations, while protecting the interests of individual scheme investors.