The T+1 Settlement System for the settlement of shares will be implemented from February 25. Initially, some stocks will come under the ambit of this system. Gradually the rest of the stocks will also be brought under its ambit. This system will be applicable for trading of shares on both the NSE and BSE stock exchanges. What is T+1 Settlement System, what are its benefits, what does it mean for investors? Let us know the answers to these questions.
What is Settlement System?
When you buy or sell shares, it takes some time for the money to arrive in your savings account or the shares in your demat account. This process is accomplished through a system, which is called the settlement system. Presently T+2 settlement system is applicable in India. This means that the settlement of shares is completed within 2 days from the date of buy or sell order. We can understand this with an example. Suppose you have bought a share on Monday, then it will come in your demat account by Wednesday only.
After almost 19 years, SEBI is making changes in the settlement system. Earlier in April 2003, T+2 settlement system was implemented in place of T+3 settlement system. This means that then it used to take three days for the shares to reach you. The shares will be credited to your demat account within 24 hours after the T+1 settlement system is implemented.
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What is the advantage of T+1 settlement system?
SEBI had introduced the T+1 settlement system plan in September last year. In fact, many parties involved in the stock markets were demanding to reduce the settlement cycle. After much deliberation about this, SEBI decided to continue with both the systems of settlement. The stock exchanges were given the option to either adopt the new system or continue with the existing system.
BSE and NSE issued joint statements in this regard in November. It said that they are ready to adopt the new system of settlement in a phased manner from February.
Which shares will come under T+1 settlement system?
Initially, shares of only 100 companies will come under the T+1 settlement system. These companies will be selected on the basis of market valuation. The 100 companies with the lowest valuation will be made part of it initially. Then, on the Friday of every next month, the shares of 500 companies will be included in this list. This trend will continue till all the shares are covered under the new system.
What will be the effect on you?
Since initially only 100 companies with the lowest valuations will come under the new system, you will be impacted only if you trade penny stocks. The effect will be that the shares will be credited to your demat account on the very next day of placing the order. Or on selling the shares, the money will come to your savings account the next day. Since, every month the number of shares in this list will keep increasing, due to which the shares of all the companies will come under this system after some time. With this, whatever shares you buy or sell will be settled soon.
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