The mutual fund industry is fast gearing up for settling buy and redemption of units in T+1 (trade plus one) with the capital markets regulator SEBI working on instantaneous settlement for equity markets.
Currently, mutual fund industry follows T+2 trade settlement cycle which means investors will get the money in their account in two days after submitting the form for redemption.
In February, mutual funds adopted T+2 settlement after the equity market moved to T+1 cycle in January.
Madhabi Puri Buch, Chairperson, SEBI said there is some more work to be done before rolling out instantaneous settlement in equity markets and if settlement through ASBA (application supported by blocked amount) in the secondary market goes through smoothly, then the next step is instantaneous settlement.
Going by an analysis of redemptions of ₹24 lakh crore (only in equity and hybrid schemes), she said a back-of-the-envelope calculations shows mutual fund investors have gained ₹230 crore with the cut in time line for the mutual fund redemptions.
Buch, in a recent press conference, also said that the reduced settlement timeline in equity markets will have an impact on mutual fund units eventually as SEBI aims to reduce the allotment and redemption of units to one day. This means that from the current standard of T+2, redemption and allotment of MF units will also reduce to T+1, she said.
A Balasubramanian, Chairman, Amfi, and Managing Director & CEO, Aditya Birla Mutual Fund said the trading settlement in the mutual fund industry will be aligned to that of equity markets and if it is shortened by a day in the secondary market then that benefit will be passed on to mutual fund investors subject to systems and processes being put in place.
The move will definitely add to the comfort of equity investors as fixed income investments are already following T+1 settlement cycle, he added.
Sandeep Singh, Director, Wealth Creators, a mutual fund distributor said the T+1 settlement for mutual funds will be a game changer as it would encourage investors to park a part of their emergency funds also in equity schemes to earn higher returns.
Currently, if an investor puts an order for redemption after three pm on a Thursday, he will get the money only on Tuesday because of the week-end holidays but this will change to Monday in a shortened settlement cycle, he added.