MC Explains: T+1 settlement rule comes into effect from today. All you need to know

Trends in the SGX Nifty indicate a positive opening for the broader index in India with a gain of 74 points.

The Indian stock exchanges will shift to a shorter and faster ‘trade-plus-one’ (T+1) settlement cycle from January 27. The move marks a significant milestone for the Indian equity market as shares of all large-cap and blue-chip companies are set to move to the new system.

After the transition, India will become the second South Asian nation after China to switch to the T+1 system. Experts have termed the development a "truly remarkable" achievement. Let's try and decipher what is T+1, what rules we follow now, and what experts are saying about the new system.

T+1 system: The key things you should know

What is T+1 settlement?

The T+1 settlement rule simply means that all trade-related settlements must be finished within a day or 24 hours. For example, if you are an investor and bought 50 shares on Monday, these should reflect in your Demat account on Tuesday.

The settlement cycle is deemed complete only when the buyer receives the shares and the seller receives the money.

What is the current T+2 rule?

India currently follows the T+2 rolling settlement principle, which means if you buy shares on Monday, they would be credited to your Demat account after two days, which is Wednesday.

But Indian stock exchanges have been gradually shifting to the T+1 settlement cycle since February last year. Initially, 100 stocks and then 500 stocks per month, based on ascending market value, were shifted to the new regime.

The shift of over 200 of India's largest listed companies brings closure to this exercise as the National Stock Exchange has already indicated that there will be no further circulars from the bourses regarding the list of securities shifting to the T+1 settlement.

T+1 rule: What are experts saying?

Market experts and stakeholders are praising policymakers for a swift transition to the new regime.

"This is a truly remarkable achievement. Even the US has not been able to achieve this yet. This should have a positive impact on the trading volume as the rolling of funds will be faster now," Divam Sharma, founder at Green Portfolio, said, calling it a Republic Day gift to investors. "Faster settlement ensures faster liquidity for investors which should give equities investments an extra edge over other asset classes."

T+1 rule explained

Suresh Shukla of Kotak Securities Ltd said that the shift will boost operational efficiency as the rolling of funds and stocks will be faster.

"All settlements of equities will be T+1 after Republic day. Our digital ecosystem is best in the globe," posted Gurmeet Chadha, CIO of Complete Circle, on Twitter.

Puneet Maheshwari, Director of Upstox, said, “The T+1 settlement cycle will provide investors with more liquidity in the hands of the customer, enabling them to leverage investment opportunities even earlier. This new cycle has the potential to transform the stock market dynamics in its full-scale implementation, and further boost equity participation in the country.”