What is the current rule?
At present the market operates under the T+2 system. Due to this, it takes 48 hours for the money to be credited to your account. In 2003, the T+2 rule was implemented in the stock market. But now from January 27, 2023 there will be a change. The T+1 settlement system, if implemented, will allow investors to do more trading by buying funds and shares faster.
The settlement cycle is completed when the shares are received by the buyer and the payment is received by the buyer. Settlement process in India is still based on T+2 rolling settlement rule and implementation of T+1 rule will increase liquidity in the market.
What will be the impact on common investors?
If you invest in the stock market, you must have a demat account. As per the current rules, after you buy shares, they are credited to your account two days later. Because currently T+2 rule is applicable. But after implementation of T+1 system from 27th January, the shares will be credited to your account on the same day.
At the same time, if you sell shares, the money is credited to your account within 24 hours. Market experts are of the opinion that once this rule is implemented, there will be more cash available in the market and due to the availability of more cash, investors will be able to buy and sell in large volume, thereby increasing the scope of the market.
Fluctuations in the market will increase
On the other hand, some market experts are of the view that while the implementation of the new rules will benefit the market investors, the market volatility is likely to increase after the implementation of the T+1 system. Because this step by the market regulator, SEBI can provide more liquidity to more and larger investors like corporates and FIIs, DIIs. This will reduce market margins, which may increase volatility. However, he said that it will not have much impact on small investors.
The settlement system in the Indian stock market was changed from T+2 to T+3 on 1 April 2003. And after two decades of this change in hand, the T+1 system is now going to be implemented.