After equities, now mutual funds also move to shorter settlement cycle

Close on the heels of the equity segment moving to a T+1 settlement cycle, the Indian mutual fund industry has also enhanced the pace of its redemption cycle by moving to a T+2 cycle.  

The shorter settlement cycle will come into effect from February 1, according to a statement by the Association of Mutual Funds in India (AMFI). 

A T+2 redemption cycle refers to a mechanism wherein the money will be credited in the client’s bank account on the second day from the day – ‘T’ in market parlance — on which the units are sold.  

This assumes significance as currently it typically takes three days for mutual fund transaction to settle. Incidentally, starting today, the cash market segment has moved from the earlier T+2 settlement cycle to T+1. 

According to AMFI, since the underlying equity segment has moved to a T+1 settlement cycle, mutual funds can now migrate to a shorter redemption cycle and pass on the benefits to investors. 

“T+1 settlement cycle for Indian equity markets is a global first. As an industry, we want to pass on the benefit to our mutual fund investors and hence we are proactively adopting a T+2 redemption payment cycle for equity funds,” said A Balasubramanian, MD & CEO, Aditya Birla Mutual Fund and also the chairman of AMFI. 

In a similar context, N S Venkatesh, Chief Executive, AMFI said that the mutual fund industry participants have been working towards a shorter redemption payment cycle ever since the capital markets regulator Securities and Exchange Board of India (Sebi) announced the T+1 settlement cycle in a phased manner.