What Is T 1 Settlement?

• SEBI introduced the T+1 settlement cycle in a phased manner from January 27, 2023.
• T+1 settlement is a process that helps investors complete the settlement for buying and selling shares one day after the transaction date.
• It has significantly reduced the counterparty risk and the need for extra capital for investors at the time of reinvesting.

When traders and investors enter the stock market, their main goal is to make profits by buying securities at a lower price and selling them when their price is higher. However, the process of buying and selling securities such as stocks includes numerous other factors that let traders and investors get the stocks after buying and get the money after selling. One of the most influential factors in the process of buying and selling stocks is the settlement cycle. The settlement cycle is the period after which a share is credited to the Demat account of a buyer or money is credited to the trading account of a seller. Previously, the Indian stock market operated on a T+2 settlement cycle, which SEBI changed recently to T+1 (and T+0 for select stocks).

If you are a stock market investor, understanding the T+1 settlement cycle is important. This blog will help you understand what is T+1 settlement is and how it affects your investing process.

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The T+1 settlement is a term used in the stock market, which means that the settlement of a trade made by an investor, such as buying or selling a share, occurs one business day after the original transaction date. In the T+1 settlement cycle, the buyers get the shares credited to the Demat account, and the seller gets the sale proceeds credited to the trading account one day after, from the day the transaction initially happened.

Here are the benefits of the T+1 settlement cycle:

• Faster settlements: The T+1 settlement helps investors and traders with faster settlements happening the next day. Faster settlements allow for quicker reinvestment of funds, increasing market liquidity.
• Lower capital requirement: Sellers who sell their shares only get a portion of the sale proceeds as a margin just after the sale occurs. Previously, they had to wait two days for the sale proceeds to be credited. However, the T+1 settlement helps them reduce their capital requirement as they get the entire sale proceeds on the next day for reinvestment.
• Reduced risk: By shortening the settlement period to just one day after the trade date, T+1 settlement significantly lowers the risk that one party will fail to fulfil its obligations before the trade is settled. This helps reduce counterparty risk significantly.

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The Indian stock market gives access to foreign investors who invest in stocks of various companies similar to Indian investors. However, SEBI announced the new T+1 settlement cycle effective from January 27, 2023, and most foreign investors have opposed the move. One of the main reasons is the difference in the time zones, which forces them to be available for the settlement at an inconvenient time. Furthermore, they have been complaining that the new T+1 settlement cycle requires them to make significant operational changes, as they need to update their investment systems and software to ensure everything is according to the new cycle.

India is only the second country after China to make its stock market run on the T+1 settlement cycle. As every other country runs on either the T+2 or the T+3 settlement cycle, it becomes difficult for foreign investors to keep up with their own investment process and India’s new settlement process. Lastly, they are against the T+1 settlement cycle as it might lead to increased operational costs, especially when changing their systems initially.

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SEBI reviewed the previous T+2 cycle extensively and believed that it should be changed to T+1 as it has the potential to significantly benefit the Indian stock market. One of the main reasons for SEBI to come out with the T+1 settlement cycle is its benefit in making the Indian stock market safer by reducing counterparty risk. As per SEBI, its new T+1 settlement cycle helps investors save time and reduce the number of unsettled trades for long. Furthermore, the T+1 settlement cycle also helps investors reduce their capital requirement as they get 100% sale proceeds just the next day.

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Here are some top stocks that have transitioned to the T+1 settlement cycle:

• Tirth Plastic Limited
• Rita Finance And Leasing Limited
• Tirupati Fin-Lease Limited
• Transoceanic Properties Ltd.
• Govind Poy Oxygen Limited
• Satyam Silk Mills Limited
• Steel Strips Limited
• Shikhar Leasing & Trading Ltd.
• Datasoft Application Software
• Jyot International Marketing Ltd.
• Ridhi Synthetics Ltd.
• Vardhan Capital & Finance Limited
• Vinayak Vanijya Ltd.
• Buckingham Industries Limited
• Morning Glory Lsng Fin Ltd.
• Alirox Abrasives Limited
• Sree Maruthi Marine Ind Limited
• Kusam Electrical Industries Ltd.

Apart from these, there are numerous other stocks that now follow the T+1 settlement process. You can also refer to the official stock list created by BSE.

Investors investing in the Indian stock market always strive to buy and sell shares using a process that settles the transaction quickly. With the T+1 settlement process, buyers get the shares in their Demat accounts, and the sellers get their sale proceeds just after one day, making the investment process quicker. The T+1 settlement cycle has also made the Indian stock market safer by reducing the counterparty risk and streamlining the investment process. Now that you know what the T+1 settlement cycle is, you can make informed investment decisions.