What does settlement cycle mean?

A settlement cycle refers to the time period between a trade being executed and the final transfer of securities and payment of funds. In simple terms, it's the time it takes for a trade to be fully settled. The settlement cycle can vary depending on the type of security being traded and the rules of the exchange or clearing house where the trade takes place.

In India, the settlement cycle is typically T+1, which means that trades are settled within one working day after the trade is executed. This is a faster settlement cycle than what is typically seen in other countries, such as the US, where the settlement cycle is T+2. The T+1 settlement cycle is designed to reduce the risk associated with settlement failure, and to improve the overall efficiency of the Indian stock market. The Securities and Exchange Board of India (SEBI) is also exploring the possibility of introducing an instantaneous settlement cycle (T+0) in the future.

Let’s understand it with an example:

Suppose you bought shares on Monday, which is T-Day of buying the shares. The shares will transfer into your demat in T+1 day i.e., on Tuesday. In the same way if you sell the shares on T-Day, the fund will credit to you account on T+1 Day.

Note: The amount used for the transaction will clear in same day only the amount of M2M will settle in T+1 Day.

But what if there is a holiday in between?

Click here to know about the settlement on holiday.

Click here to know more about the settlement cycle.