Equity mutual funds to adopt T+2 redemption payment cycle from Feb 1

Up till now, mutual funds were following the T+3 redemption payment cycle.

In a move to benefit mutual fund investors, all asset management companies (AMCs) in India will move to T+2 — shorthand for "trade date plus two days" — redemption payment cycle for equity schemes from February.

In an announcement on January 27, the Association of Mutual Funds in India (AMFI) said that the move will be implemented uniformly with effect from February 1, 2023, (i.e., for all transactions received before cut off timing on February 1, 2023, and processed at closing NAV for February 1 2023) after allowing a couple of days for the settlement cycle /process to stabilise.

The announcement has come on the heels of Indian equity markets moving 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.

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Commenting on the development, A Balasubramanian, managing director and chief executive officer, Aditya Birla Mutual Fund and chairman, AMFI, said, “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 cycle for equity funds.”

NS Venkatesh, chief executive, AMFI added “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 the T+2 redemption payment cycle effective February 1, 2023, onwards.”

As per the Securities and Exchange Board of India (SEBI) directions, the Indian stock exchanges shifted to a shorter and faster ‘trade-plus-one’ (T+1) settlement cycle from January 27.

Before Sebi introduced the T+2 settlement system for stocks in April 2003, India followed the T+3 settlement system, meaning it took three days for shares and money to be credited to the account. Up till now, mutual funds were following the T+3 redemption payment cycle.

Amar Ranu, Head - Investment Products and Advisory, Anand Rathi Shares and Stock Brokers, said, “This is a welcome move and in line with the new equity market settlement cycle which got reduced from T+2 to T+1. The new settlement cycle, T+2  for equity MFs will reduce the waiting time for investors which would help them deploy the money in a shorter period than before. Additionally, it will also improve various other financial transactions in mutual funds such as SWP or Switch (equity to equity) which will improve efficiency."