How T+1 settlement cycle in India may help mutual funds, ETF investors

Market


T+1 settlement cycle: After inclusion of last set of 256 stocks on Friday this week, Indian stock market is going to become first in the world that will have T+1 settlement cycle for investors. So, from Friday, shares sold or bought would reflect in investors’ demat account after a period of one day, leading to faster settlement and faster liquidity for stock market investors. However, market and investment experts believe that it may soon trickle to other asset class investors. They said that after implementation of T+1 settlement cycle in Indian stock market, such fast settlement cycle may get implemented in equity mutual funds and Exchange Traded Funds (ETFs).

Expecting faster settlement cycle trickling down to mutual fund investors, Pankaj Mathpal, MD & CEO at Optima Money Managers said, “When stock market had T+2 settlement cycle, equity mutual funds had T+3 settlement cycle as mutual fund houses invest in stocks and they make payments after they receive payment from the markets. As the stock market had T+2 settlement cycle, equity mutual funds had T+3 settlement cycle. But, after the implementation of T+1 settlement cycle in Indian stock market, we are expecting announcement of T+2 settlement cycle for equity mutual funds in quick time.”

“For the retail investors, participation in debt funds, equity funds, hybrid funds and gold through ETF offerings is becoming increasingly popular. A faster liquidity in Mutual Funds through the ETF T+1 execution will increase the percentage share of investors taking the ETF route. This will also encourage an increase in ETF offerings, which is currently very small when compared to markets like US,” said Divam Sharma, Founder at Green Portfolio — a SEBI registered PMS provider.

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Expecting T+1 settlement cycle for ETF investors, Kartik Jhaveri, Director — Wealth at Transcend Capital said, “Currently ETFs have T+2 settlement cycle as stock market has T+2 settlement cycle. But, from Friday, stock market is moving to a fully T+1 settlement mode and hence one can expect the same settlement cycle for ETF investors in near future. “

Started in February 2022, T+1 settlement cycle in Indian stock market would become fully effective from Friday this week after inclusion of last set of 256 stocks, which includes all Nifty 50 and Sensex stocks like State Bank of India 9SBI), Reliance Industries Ltd or RIL, Infosys, Tata Motors, etc.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.


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