Settlement Cycle in the stock market refers to the time taken to complete a trade – that is, the transfer of securities from the seller to the buyer and funds from the buyer to the seller. It ensures that transactions made on an exchange are completed accurately and within a fixed period, reducing counterparty risk and maintaining market integrity.

In India, stock exchanges like the NSE and BSE follow the T+1 settlement cycle, as directed by SEBI. This means that when you buy or sell shares on a given day (T), the transaction is settled the next trading day (T+1). For example, if an investor purchases shares on Monday, the shares and payment are exchanged on Tuesday. This faster settlement system improves liquidity and allows investors quicker access to their funds or securities.

The settlement process involves multiple steps — trade execution, trade confirmation, clearing, and settlement. Clearing corporations such as the National Securities Clearing Corporation Limited (NSCCL) ensure the smooth exchange of securities and funds between parties. They act as intermediaries, guaranteeing that both buyers and sellers meet their obligations.

Moving from the earlier T+2 cycle to T+1 has enhanced efficiency and reduced systemic risk. Investors benefit from faster credit of shares and funds, promoting better capital utilization. Additionally, this aligns India’s capital market with global standards and supports SEBI’s goal of improving transparency and operational efficiency.

Understanding the settlement cycle helps investors plan their trades, manage liquidity effectively, and avoid transaction delays. It is a crucial aspect of trading discipline and ensures smooth functioning of the securities market under a regulated and secure framework.