Investors in equity mutual funds now have to adhere to a new rule that will take effect on February 1, 2023, when all Asset Management Companies (AMCs) will switch to a T+2 redemption payment schedule. The action is consistent with the T 1 equity market settlement cycle and will benefit investors in mutual funds.
Equity mutual fund payment redemption current rule
At present, funds are transferred to the investor’s bank account within 3 days after the completion of the redemption process.
What is the T+2 redemption payment cycle for equity mutual fund schemes?
The shortening of the settlement cycle by a day means making the availability of funds a day sooner than at present.
A shorter cycle not only reduces settlement time but also frees up and reduces the capital required to collateralize that risk.
“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,” Aditya Birla Mutual Fund MD and CEO and AMFI Chairman A Balasubramanian said.
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, AMFI Chief Executive NS Venkatesh said.
From 27 January 2023, Indian equity markets have move to a T+1 settlement cycle for all stocks, shortening the settlement cycle by a day and making the availability of funds a day sooner than at present.
How T+1 settlement in India can benefit equity investors
Ravi Singhal, CEO at GCL Broking said, “After implementation of T+1 day settlement, capacity to re-invest in the direct equity market is expected to rise as one would have money transferred within one day of profit booking. Earlier, it was after two days of profit booking due to the T+2 settlement cycle. T+1 settlement may lead to a rise in intraday or BTST (Buy today and sell today) stocks’ trade volume as some people with low-risk appetite may move to the cash segment instead of future & option trade. So, those who have low-risk appetite may also indulge in BTST trade via cash segment.”
The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry. As of now, all the 44 asset management companies that are registered with SEBI, are its members.