Mutual funds adopt T+2 settlement cycle for redemption payouts

Move comes two months after Sebi mandated MFs to pay investors within three days of redemption

Starting next month, mutual funds will deposit the redemption amount from equity schemes in investors’ bank accounts within three days of the transaction. The Association of Mutual Funds in India (Amfi) announced on Friday that the industry will move to a T+2 settlement cycle for equity schemes from February 1.

"From today, the Indian equity markets move to T+1 settlement cycle for all stocks, shortening the settlement cycle by a day... To pass on this benefit to mutual fund investors, it has been decided all asset management companies (AMCs) will move to T+2 redemption payment cycle for equity schemes, and implement this uniformly with effect from February 1, 2023," Amfi said in a press release.

T+2 means the day of the trade and the next two business sessions. This means that if an investor sells MF units on Monday, the money will get deposited in his/her bank account by Wednesday.

In November, the Securities and Exchange Board of India (Sebi) amended the timelines for the transfer of dividend and redemption proceeds for mutual fund unitholders, making it mandatory to transfer redemption proceeds within three working days and dividends in seven working days.

Earlier, AMCs could make dividend payments within 30 days without any penalty and the transfer of redemption proceeds could be done in 10 working days.