SEBI Circular Update: Framework for Net Settlement of Funds for FPIs in Cash Market
Date: April 24, 2026
Issued by: Securities and Exchange Board of India
1. Background
Under the existing framework, Foreign Portfolio Investors (FPIs) are required to settle transactions on a gross basis at the custodian level. This has led to:
Higher liquidity requirements
Increased funding costs (including forex slippage)
Operational inefficiencies, especially during index rebalancing
2. Key Change Introduced
SEBI has now permitted net settlement of funds for certain FPI transactions in the cash market.
What qualifies for net settlement?
Transactions that are “outright” in nature:
Only buy or only sell in a security within a settlement cycle
These transactions can now be netted to determine final fund obligation
3. Important Conditions
❌ Transactions involving both buy and sell in the same security (within the same settlement cycle) will continue on gross basis
💰 If purchases exceed sales → FPI must fund the difference
⚠️ Excess sale proceeds cannot be used to offset non-outright purchase obligations
📦 Securities settlement remains gross (no change)
🧾 STT and stamp duty continue on delivery basis
4. Operational Impact
This move is expected to:
Reduce capital blocked for FPIs
Improve liquidity efficiency
Lower transaction and funding costs
Simplify settlement workflows
5. Implementation Timeline
To be implemented on or before December 31, 2026
Standards to be defined by custodians and industry bodies
6. Illustration (as per SEBI Annexure)
As shown in the example (Pages 4–6):
Earlier (gross): FPI had higher pay-in obligations (₹2000)
Now (net): Pay-in reduces to ₹1000, improving capital efficiency
The diagrams on pages 5 and 6 clearly depict how fund flows between FPI → Custodian → Clearing Corporation become more efficient under the new mechanism.
7. Regulatory Basis
Issued under:
Section 11(1) of SEBI Act, 1992
Regulation 44 of SEBI (FPI) Regulations, 2019