New Equity Mutual Fund Rule for Investors from February 1, 2023

All investors in equity mutual fund schemes can now get funds in their bank account a day earlier. From February 1, 2023, all Asset Management Companies have decided to adopt the T+2 redemption payment cycle.

Are you an equity mutual fund investor? If yes, you should be aware of the major trade settlement update. From February 1, 2023, all AMCs (Asset Management Companies) in India have moved to T+2 Settlement of payment redemption cycle for all equity mutual-fund schemes.

This move in the mutual fund industry is in sync with a recent one in the equity markets. On January 27, 2023, the equity market in India also shortened the settlement cycle by one day. They moved to a T+1 settlement cycle. The advantage of this cycle is that the funds become available to the investors one day earlier than before. Earlier it took three days to settle a trade. But now, it will need two days to complete a trade cycle.

The new mutual fund rule on Settlement will help MF investors to complete a trade cycle faster. It will make the fund available to them a day earlier.

T+3 vs. T+2 Settlement Cycles: What are the Differences?

1. In the case of T+3 Settlement:
   After the redemption process was completed, it took three days for the fund to be transferred to an equity mutual fund investor's bank account.
    
2. In the case of T+2 Settlement:

• Receive Funds Faster: After implementing the T+2 Settlement of the payment redemption cycle for all equity mutual-fund schemes, the investors will receive funds in their bank account just two days after the redemption process is completed.
   
• Freeing up of Capital: Another advantage of the T+1 cycle is that it reduces and frees up capital needed for collateralizing risk.

Final Words

AMFI Chief Executive NS Venkatesh has said that the mutual fund industry has been preparing for a shorter redemption payment cycle since SEBI announced the phased implementation of the T 1 settlement cycle in the Indian equity markets. 

According to A Balasubramanian (AMFI Chairman as well as CEO and MD of Aditya Birla Mutual Fund):

"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."