Following the inclusion of the last 256 large-cap and blue-chip stocks, the Indian market has become the first in the world to completely migrate to a shorter trade settlement cycle of T+1 days. With the T+1 trade settlement system, investors can now get the shares into their demat accounts and sell them the next day instead of the next day earlier. While the T+1 settlement cycle does not directly apply to mutual funds, experts say it will benefit the industry.
The current ‘Trade Plus Two’ (T+2) settlement system was introduced in 2003, after the market regulator Sebi moved equity markets from a previous ‘T+3’ rolling settlement that was in practice from 2001. Before 2001, the Indian stock market had a weekly clearing system.
Divam Sharma, founder of Green Portfolio, said: “This is truly a remarkable achievement as India will be the first market to achieve a full T+1 trading settlement. Not even the US has managed to do that yet.”
T+1 Impact on the investment fund industry
Prasant Bhansaali, Director of Mehta Equities, said: “T+1 settlement enables MFs (mutual funds) to process investor redemption requests much faster, increasing the velocity of money. Faster settlement cycles improve the efficiency of capital markets and benefit all participants.”
Until now, when the stock market followed the T+2 settlement cycle, equity funds had a T+3 settlement cycle. This is because mutual funds invest in stocks one day after they receive payment from the markets. Since the stock market had a T+2 settlement cycle, equity funds had a T+3 settlement cycle.
Pankaj Mathpal, MD & CEO of Optima Money Managers, said, “Following the implementation of the T+1 settlement cycle in the Indian equity market, we expect the announcement of the T+2 settlement cycle for equity funds shortly.”
Prasant Bhansaali of Mehta Equities said the Indian stock market is fully prepared for T+1 settlement, with both brokers and clients finding it more efficient. Upfront margin obligations to the client have ensured that the broker has substantial collections from clients before entering into trades for clients.
“While check cashing continues to take more time, the majority of money transfers between broker and client are electronic and are handled on the same day,” said Bhansaali.
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