Streamlining Settlement: Why SEBI Wants Mutual Fund Trades Kept Strictly Unidirectional

Jyoti Rathi - Kolkata Bureau Sep 03, 2026 3,300 Views

SEBI has proposed a new framework requiring mutual fund cash market transactions to be strictly unidirectional per security, disallowing simultaneous buying and selling of the same scrip. Additionally, net fund settlements will be permitted only at the individual scheme level, ensuring robust portfolio ring-fencing.

The Securities and Exchange Board of India has proposed that cash market transactions by mutual fund schemes must involve either a sale or a purchase, but not both in the same security.

The Securities and Exchange Board of India (SEBI) has released a consultation paper outlining a revised framework for cash market transactions undertaken by mutual fund schemes. According to regulatory disclosures, the proposal dictates that a transaction in a specific security must be strictly limited to either a sale or a purchase during a settlement cycle, effectively barring simultaneous dual-side intraday trading in the same scrip by a single scheme. Furthermore, the regulatory framework specifies that net settlement of funds shall be permitted exclusively at the level of an individual mutual fund scheme, preventing cross-scheme netting across distinct asset pools.

Safeguarding Fund Accounting and Liquidity Integrity

The proposed guidelines aim to streamline institutional clearing workflows and enhance transparency across domestic asset management operations. Under current market mechanics, institutional investors operate under strict gross-obligation standards designed to mitigate counterparty risk.

According to official regulatory updates from SEBI, restricting transactions to a singular direction per security per cycle eliminates circular trading ambiguities and ensures cleaner audit trails. By confining net settlement calculations strictly to the boundaries of an individual mutual fund scheme, the market regulator intends to prevent inter-scheme fund blending, ensuring that unit-holder interests remain ring-fenced within their respective investment portfolios.

Impact on Institutional Portfolios and Compliance

For asset management companies (AMCs), institutional custodians, and market participants, the proposed framework necessitates adjustments to order-routing and execution algorithms. Mutual fund managers will be required to coordinate portfolio rebalancing more carefully to avoid inadvertent intraday counter-transactions in identical securities.

Financial market analysts note that while these rules promote rigorous compliance and risk mitigation, they also demand tighter intraday liquidity management from fund houses, particularly during heavy index rebalancing periods or large-scale portfolio restructuring.

Official Sources Section

Policy frameworks, regulatory objectives, and consultation proposals are based on official documents and releases issued by the Securities and Exchange Board of India (SEBI). Additional compliance context was referenced via market circulars published by BSE Limited and the National Stock Exchange of India (NSE).

Quote Section

"According to official regulatory filings, the proposed guidelines mandate that cash market transactions must be strictly unidirectional per security, with fund netting restricted entirely to individual scheme boundaries."

Why It Matters

Establishing clear boundaries for cash market transactions and enforcing single-scheme net settlement prevents systemic risks and protects investor capital. For mutual fund investors, these measures ensure transparent portfolio accounting and reinforce regulatory oversight across the domestic asset management sector.

Key Facts at a Glance

Regulatory Body: Securities and Exchange Board of India (SEBI).
Core Proposal: Transactions in a single security must be either a sale or a purchase, not both.
Net Settlement Limit: Restricted strictly to the level of an individual mutual fund scheme.
Objective: Enhance operational transparency, prevent inter-scheme blending, and mitigate settlement risks.

Frequently Asked Questions

What does the SEBI proposal require for mutual fund security transactions? The proposal mandates that a transaction in a security must be either a sale or a purchase, prohibiting simultaneous dual-side trades in the same scrip within a settlement cycle.
How will fund settlement be calculated under the new guidelines? Net settlement of funds will be allowed exclusively at the individual mutual fund scheme level.
Why is SEBI introducing these cash market trading rules? The framework aims to improve operational efficiency, prevent inter-scheme fund blending, and strengthen institutional risk management.
Where was the consultation paper officially published? The proposal was released for public commentary on the official portal of the Securities and Exchange Board of India (SEBI)