How long is the settlement period duration in India?

The settlement period duration in India varies, but for most securities, it is currently T+1, meaning the settlement occurs one business day after the trade date. Previously, it was T+2, indicating a settlement within two business days.

What does T+2 signify in the settlement period?

T+2 in the settlement period means that the trade will be finalised and the ownership of the securities will be transferred two business days after the trade date. This was the standard until it was largely replaced by T+1 in 2023 for most securities.

Can the settlement period be shorter than T+1 for any securities?

While T+1 is the standard for most securities, some transactions, like those in certain mutual fund schemes, can settle on the same day, known as T+0. However, this is less common and depends on specific fund rules and market practices.

Are there any penalties for brokers if they fail to meet the settlement deadline?

Yes, brokers can face penalties and fines if they fail to meet the settlement deadline. These penalties are designed to ensure the integrity and efficiency of the market and to protect the interests of investors.

What is Settlement Period: Settlement Date

If you trade in shares and want to understand how and when your money or shares are actually received, this article will help you. Every trade does not finish the moment you buy or sell. There is a short process that happens in the background, called the settlement date.

Knowing how this works is important for both new and experienced investors. It helps you plan your trades better and avoid confusion about payments and ownership. The settlement period decides when shares move to the buyer, and money reaches the seller.

Key Takeaways

The settlement period is the time between placing a trade and its final completion.

It decides when shares are transferred and when money is credited, so understanding the settlement period traders plan and avoid delays

In India, most stocks, bonds and ETFs now follow a T+1 settlement cycle.

Faster settlement improves safety, efficiency and liquidity for investors.

What is Settlement Period?

The settlement period, also referred to as the settlement cycle, refers to the timeframe between the trade date and the settlement date in a securities transaction.

Trade date: The date at which you place an order to buy or sell the stock and make the required payment.

Settlement date: The date at which the trade is finalised and ownership of the shares is transferred.

Ever since trading was established, the industry has revolutionised in many aspects. It took another great leap in making trading cost—and time-efficient as technology upgraded and online trading was established. Now, for most securities, the settlement takes place in one business day from the date of order execution. It is also written as T+1, where T represents the transaction date.

History of Settlement Period

In the beginning, the settlement date was T+5 for most of the securities at the stock exchange. In 2002, the Securities and Exchange Board of India (SEBI) reduced it to three business days for most securities.

With the advent of online trading, the transactions of shares became an automated process. To keep pace with technology, in 2017, SEBI further reduced the settlement period to two business days. Today, the cycle has been further reduced, making it T+1 for most securities.

Types of Settlement Dates

There are different settlement dates for different types of marketable securities. The following are the two types of settlement dates known currently:

Bonds, stocks and ETFs: The transfer of ownership for these stocks took place within 2 business days after the trade date. In 2022, SEBI announced that a new rolling settlement would take place in phases. Since February 2022, various batches of stocks have been implemented with the T+1 settlement cycle. Finally, from 27th January 2023, the entire batch of securities consisting of stocks, bonds and debentures was moved to the T+1 settlement date.

Mutual funds: The period of the settlement cycle for mutual funds depends on the chosen scheme. Based on the scheme, the trade cycle can be either T+1 or T+2. For example, debt mutual funds settle within 1 day, whereas equity mutual funds can have a settlement cycle of 2 days.

How a Settlement Works

To illustrate, let us consider the situation of selling a stock. The following is what the working of a settlement process would look like:

Once you sell stocks from your demat account, the shares become ineligible for further transactions. These shares are then earmarked for settlement.

These shares are then transferred to the Demat account of the respective buyer within one business day after the date of the transaction.

To process the pay in, the reserved shares are debited from your demat account and moved to the clearing corporation.

Your linked bank account is credited against the shares sold. This amount is credited to the bank account after the deduction of all applicable charges, namely, brokerage, transaction fees and the applicable tax.

Settlement Period Example

The settlement period can be understood with the help of an example. The scenario is as follows for T+1 Settlement:

Trade date: Let’s assume that you purchase the shares of a company on Tuesday, 14th May 2024. This is the date when the transaction takes place.

Settlement period: In this case, we assume a T+1 settlement, meaning the settlement would occur within 1 business day of the trade date.

Settlement date: Since the cycle is for T+1, the next business day would be one business day from the trade date, that is 15th of May, Wednesday.

On Wednesday, the following events will take place:

Shares of the company XYZ will be electronically transferred to your brokerage account.

The legal ownership of the purchased shares would be transferred to your name.

If you had sold the shares, you would receive a part of the amount in your trading account immediately. The rest would be credited after the settlement is done. These funds can only be withdrawn once the transaction is completed, i.e. after the settlement date.

Conclusion

With India moving to a faster T+1 cycle, the trading process has become more efficient and secure. Knowing how the settlement period works helps investors plan their funds better, avoid delays, and manage trades smoothly. Whether you are buying or selling shares, being aware of settlement timelines reduces confusion and improves decision-making. A clear understanding supports better trading habits and builds confidence in the investing process.

What is Settlement Period? Settlement Date