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Friday, January 27, 2023

How India’s T+1 Settlement Cycle Can Help Mutual Funds and ETF Investors — Explained

Settlement cycle T+1: After the listing of the latest set of 256 shares on Friday this week, the Indian stock market will become the first in the world to have a T+1 sell-off cycle for investors. So, starting Friday, shares sold or bought will be reflected in investors’ demat account after a one-day period, leading to faster settlement and quicker liquidity for stock market investors. . However, market and investment experts believe that it could soon reach other asset class investors. They said that after the implementation of the T+1 liquidation cycle in the Indian stock market, such fast liquidation cycle can be implemented in equity mutual funds and exchange traded funds (ETFs).

Pankaj Mathpal, CEO and CEO of Optima Money Managers, hoped that the quicker payoff cycle would hit mutual fund investors, he said, “When the stock market had a T+2 payoff cycle, money mutual funds capital had a T+3 settlement cycle, since mutual fund houses invest in stocks. and they make payments after receiving payment from the markets. As the stock market had a T+2 liquidation cycle, the equity mutual funds had a T+3 liquidation cycle. But, after the implementation of the T+1 liquidation cycle in the Indian stock market, we expect the announcement of the T+2 liquidation cycle for equity mutual funds in a short time”.

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

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Expecting a T+1 settlement cycle for ETF investors, Kartik Jhaveri, Director — Wealth at Transcend Capital, said: “ETFs currently have a T+2 settlement cycle, as the stock market has a T+2 liquidation But, as of Friday, the stock market is moving into a fully T+1 liquidation mode and therefore the same liquidation cycle can be expected for ETF investors in the future next”.

Started in February 2022, the T+1 liquidation cycle in the Indian stock market would take effect from Friday this week after the listing of the latest set of 256 shares, which includes all shares of Nifty 50 and Sensex as State Bank of India 9SBI), Reliance Industries Ltd. or RIL, Infosys, Tata Motors, etc.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of the Mint. We advise investors to consult with certified experts before making any investment decision.

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