New Delhi: Securities and Exchange Board of India (Sebi) on Friday allowed Foreign Portfolio Investors (FPIs) to net funds for same-day cash market trades, replacing the current gross settlement system, in a move aimed at improving operational efficiency and lowering funding costs-especially during index rebalancing days.

The new framework will be implemented by December 31, 2026, the Sebi said in its circular.

It will enable FPIs to use proceeds from same-day sales to fund purchases, thereby meeting only their net fund obligation. At present, FPIs settle each transaction separately on a gross basis with custodians, leading to higher liquidity requirements, funding costs and foreign exchange slippages.

Sebi said net settlement will apply only to "outright transactions", defined as either a purchase or a sale in a security within a settlement cycle, but not both. Transactions involving both buying and selling in the same security during a cycle will be excluded and will continue to be settled on a gross basis.

Under the framework, if the value of outright purchases exceeds sales, the FPI will fund the balance along with any non-outright purchase obligations. However, if sales exceed purchases, the surplus cannot be used to offset non-outright obligations.

The regulator clarified that while fund settlement can be netted, settlement of securities will continue on a gross basis between foreign portfolio investors and custodians. Levies such as Securities Transaction Tax and stamp duty will remain unchanged and be applied on a delivery basis. The move follows Sebi board approval granted last month.