India is the global leader in Unified Payments Interface (UPI) payments, With $1.7 trillion worth of transactions in fiscal year 2023 that have enabled instant and seamless fund transfers across banks and platforms.
Considering this, India has developed a cutting-edge technological infrastructure to facilitate high-speed, high-volume trading and settlement activities.
Since the adoption of the T+1 settlement cycle, The Securities and Exchange Board of India (SEBI) is working on a plan for same-day transaction settlement by March 2024, followed by an optional parallel system for instantaneous settlement, according to SEBI chairman Madhabi Puri.
T+0 is also known as immediate or real-time settlement. This signifies that trade settlement will happen on the same trading day.
The implementation of this arrangement will transform the Indian stock market, making it more liquid, efficient, and risk-free. Furthermore, it will result in faster mutual fund trade settlement, maybe from T+2 to T+1.
Here are the benefits investors can enjoy from the T+0 settlement cycle
Increase liquidity
Stocks can be liquidated instantly and can convert into cash on the same day leading to higher liquidity.
Reduce risks
Instant settlement minimizes the counterparty risk that investors experience in the event of a counterparty default or delay. Counterparty risk occurs when one party in an agreement fails to meet its obligations to the other party.
The shorter the settlement cycle, the smaller the risk exposure and chance. The quick settlement will help decrease operational risk caused by faults or failures in the processing or settlement of deals.
Improve efficiency
By reducing the time gap between transaction execution and settlement, instant settlement would increase the efficiency and transparency of the Indian stock market.
The faster the settlement cycle, the more quickly investors may access their funds and assets and alter their portfolios to meet their requirements and preferences. Because there will be fewer mismatches in trade records, instant settlement will eliminate the requirement for reconciliation and dispute resolution.
Faster fund remittances
Instant settlement will allow for quicker fund transfers to investors since they will get their funds on the same day as their sell transactions. This will enhance their cash flow and liquidity management, allowing them to reinvest or spend their money without delay.
Written by Omkar Chitnis
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