T+1 Settlement System: From Jan 27, Shares Will Be In Your Demat A/c Next Day of Trade; Details

The Indian share market is going to fully shift to a shorter (T+1) trading cycle from Friday (January 27), making the country the first in the world to do so. As of now, the domestic equity market follows the T+2 settlement cycle, which means if you buy a share on Monday, it will be credited into your demat account on Wednesday (T+2). With the T+1 trading settlement system from January 27, investors will be able to get the shares in their demat accounts and sell them the next day (Tuesday, in this case).

The ‘Trade Plus Two’ (T+2) settlement system was introduced in 2003, after the markets regulator Sebi had moved the stock markets from an earlier rolling settlement of ‘T+3’ which was in practice from 2001. Before 2001, the Indian stock market had a weekly settlement system.

Experts said it is an achievement to completely shift to the T+1 share trade settlement system, which will increase liquidity in the market due to faster rolling of funds.

Divam Sharma, founder at Green Portfolio, said, “This is a truly remarkable achievement as India will be the first market to achieve a complete T +1 trading settlement. This is a Republic Day gift to the nation. Even the US has not been able to achieve this yet.”

He added that T+1 should have a positive impact on trading volumes as the rolling of funds will be faster now. The faster settlement ensures faster liquidity for investors which should give equities investments an extra edge over other asset classes.

Milan Vaishnav, founder of Gemstone Equity Research and Advisory, said, “It is expected to increase the exchanges’ overall turnover in the long run. For investors and traders, it would mean faster rollover/turnover of money and profits. They would get their payouts a day earlier than usual and it would also mean lesser interest cost on the borrowed funds.”

Nithin Kamath, founder and CEO of online brokerage Zerodha, said, “Starting tomorrow, India will become the first major market to completely move to a T+1 settlement cycle (China is partly T+1). It is crazy how far ahead we are in terms of market infrastructure and safety, even when compared to the developed world.”

“What does the new settlement system really mean? Firstly, shares come into the demat account faster and cash also comes into the account faster. This leads to faster turnaround of stocks and funds and is likely to improve the trading volumes in the cash market in the medium term. In other words, shorter settlement cycles will give the investors the freedom to trade more as the rolling of funds would be faster. Additionally, this also puts the settlement system of cash market and the futures & options market more in sync. Currently, the cash market is on T+2 rolling settlement while the futures market are on T+1 settlement cycle. That misalignment is removed post the shift to the T+1 system,” according to 5paisa.com.

Is T+1 Applicable For Mutual Funds?

No, the T+1 settlement system is not applicable for mutual funds.

The Timeline of The Gradual Shift

In September 2021, markets regulator Sebi had issued a circular allowing exchanges to move to the T+1 settlement cycle on an optional basis. In November 2021, stock exchanges, depositories and clearing corporation had announced to shift to the T+1 trading cycle in a phased manner.

The shift to the new T+1 cycle started with the companies having the lowest market capitalisation. In January and February 2022, 100 stocks were shifted to T+1. From March 2022 onwards, a total of 500 stocks were added under the new settlement system on the last Friday of every month.

Now, on this Friday (January 27), which is the last Friday of this month, all the large-cap and blue-chip stocks will move to the T+1 settlement system, thus marking the complete shift to the new trade settlement system.

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