Starting January 27, 2023, India became the first country in the world to enable complete T+1 settlement of transactions, making stock market participation for individual investors shorter and faster. Shortening the settlement cycle by a day means making availability of funds a day sooner than the existing T+2 cycle.
Now mutual funds have also decided to shorten the settlement day by one day to the T+2 cycle from the existing T+3 cycle from February 1, 2023.
“To pass on this benefit to mutual fund investors, it has been decided that all asset management companies (AMCs) will move to the T+2 redemption payment cycle for equity schemes, and implement this uniformly with effect from February 1, 2023,” the mutual fund industry body, Association of Mutual Funds in India (Amfi) said in a release.
“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 cycles for equity funds” Says A Balasubramanian, Chairman, Amfi, and managing director & CEO, Aditya Birla Mutual Fund.
This measure has been taken in the backdrop of the implementation of shorter settlement cycle for stock investment by the market regulator, the Securities and Exchange Board of India (Sebi).
Says NS Venkatesh, chief executive, Amfi: “Amfi and its member AMCs always keep investor interest at the forefront. Since the day Sebi announced the phased movement of equity markets to the T+1 settlement cycle, the industry has been preparing to shorten the redemption payment cycle and we are happy to announce the shift to T+2 redemption payment cycle effective February 1, 2023 onwards.”.
The capital market regulator had in November 2022 asked mutual fund houses to pay redemption proceeds amount in three days and dividends in seven days to investors .
What this means for you?
Shorter settlement ensures a faster liquidity for investors. To give you a perspective, suppose if you give redemption request to the fund house before the cut-off time (for equity its 3 PM) on February 1, 2023, you will get your redemption proceeds on February 3, 2023.