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Clearing and Settlement Cycle in Mutual Fund

Updated on September 20, 2022 , 12108 views

While transacting in Mutual Funds, people should have a sound understanding about the concepts of transaction date and settlement dates. Transaction date refer to the date on which a transaction takes place. On the other hand, settlement date refers to the date on which the ownership is transferred. For example, if you purchase invest money in an Equity fund today then; today’s date will be treated as the transaction date. However; settlement date need not be today’s date itself. Therefore, people should understand that both transactions date and settlement date may or may not be the same. It changes depending on the type of Mutual Fund they are dealing in. So, let us understand the settlement cycle in case of Equity Funds and debt funds.

Settlement Cycle in Debt Funds

Settlement cycle in case of debt funds for both purchase as well as sale transaction is T+1 days. For example, if you purchase or sell a Debt fund scheme on Tuesday then the settlement date for this transaction will be Wednesday. However, one of the important points that should be noted at this moment is there should not be any holiday in between the settlement cycle. In case of holidays, the transaction day will get shifted to next working day. For example, if Wednesday is a holiday then; the settlement day will be Thursday. In addition, people should also understand that they need to place the order before 3 PM to get the same day’s NAV while in case of Liquid Funds the order should be placed before 2 PM. If the order is placed after the cutoff time then; the transaction day will be treated as next day and you will receive next working day’s NAV.

Settlement Cycle in Other than Debt Funds

Settlement cycle in case of schemes other than debt funds like equity and Balanced Fund is T+3 days. For instance, if you purchase a scheme an equity fund scheme on Monday then the settlement for the same will be treated as Thursday. However, in there is a holiday between the settlement days then, the settlement date will shift to next working day that is Friday. Similarly, the cutoff time for placing an order is 3 PM. If the order is placed before 3 PM people will get the same day’s NAV and if not, the will be allotted the next working day’s NAV.

Thus, with the help of above explanation, we need to plan our investment cycle accordingly to ensure that we can undertake maximum benefits.

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All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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