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Published on 15 July 2025

SEBI's Inquiry into Dark Pools: Implications for Foreign Portfolio Investors in India

SEBI Proposes Later Cut-Off for MFOS Redemptions to Ease End-of-Day Fund Management

Mumbai, January 2025 – In a move designed to ease operational pressures on stock brokers and clearing members, the Securities and Exchange Board of India (SEBI) has proposed extending the redemption cut-off time for Mutual Fund Overnight Schemes (MFOS) from 3:00 PM to 7:00 PM. The proposal, released in a consultation paper dated January 20, 2025, aims to improve post-market fund flow efficiency while maintaining the core safeguards that underpin overnight schemes.

This shift reflects SEBI’s attempt to align market processes with the practical needs of intermediaries handling client fund settlements after trading hours—a task that has become increasingly complex due to rising trade volumes and stringent regulatory norms on fund segregation.

Why SEBI Is Proposing the Change

Regulatory Compliance Pressure

SEBI already requires that stock brokers and clearing members transfer all client funds to clearing corporations at the end of each trading day. This transfer can be made in the form of:

  • Cash
  • Fixed Deposit Receipts (FDRs) with lien
  • Pledged MFOS units

Many intermediaries prefer overnight funds due to their liquidity, safety, and next-day redemption certainty. However, with the current 3:00 PM redemption cut-off, it becomes operationally difficult to un-pledge MFOS units and submit redemption requests after the market closes, when these reconciliations typically happen.

Key Elements of the Proposal

1. Extension of Redemption Cut-Off

Current Cut-OffProposed Cut-Off
3:00 PM7:00 PM

This extended deadline would allow brokers to process redemptions after trading hours, improving compliance with SEBI’s end-of-day fund transfer obligations.

2. Eligibility Restrictions for MFOS Usage

Only MFOS schemes that exclusively invest in overnight government securities, such as:

  • Government bond repo markets, and
  • Tri-party Repo Dealing and Settlement (TREPS), will qualify for this redemption cut-off extension.

This ensures that client funds remain parked in safe, short-duration instruments.

3. Settlement Process Remains Intact

Overnight schemes are structurally different from typical mutual funds:

  • Their assets mature daily.
  • Redemption requests don’t require asset sales.
  • Fund managers simply withhold the amount requested from the next day's reinvestment.

This mechanism means that the cut-off extension has no impact on NAV calculations, liquidity, or redemption processing.

4. Industry-Wide Consultation

The proposed changes were shaped by recommendations from:

  • A SEBI-formed Working Group
  • The Association of Mutual Funds in India (AMFI)
  • The Mutual Funds Advisory Committee (MFAC)

Feedback is open until February 10, 2025, reflecting SEBI’s commitment to consultative policymaking.

Stakeholder Implications

For Brokers and Clearing Members

  • Offers more operational breathing room after markets close.
  • Reduces last-minute redemption congestion.
  • Enhances ability to comply with daily fund segregation norms.

For Mutual Fund Houses

  • Minimal operational impact.
  • Overnight schemes already aligned with daily redemptions.

For Investors

  • Retail investors are unaffected from a usability standpoint.
  • For institutional investors, the change streamlines post-market fund movement, increasing system reliability.

A Tactical Adjustment Rooted in Market Practicality

SEBI’s move to extend the MFOS redemption cut-off time is a measured, risk-aware policy adjustment that responds to evolving market dynamics—particularly the growing reliance on overnight funds for short-term cash management by brokers and clearing members.

While subtle in design, the shift enhances post-market fund efficiency without tampering with the core risk-mitigation architecture of MFOS. By focusing the change on low-risk, government-backed instruments, SEBI continues to uphold its mandate of investor protection, even as it fine-tunes the mechanics of day-to-day fund operations.

As the capital market ecosystem grows more interconnected and digitally driven, such targeted operational reforms help ensure the broader financial system remains agile, transparent, and resilient.

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