Liberation from Quarterly settlement payment and retransfer


I know quarterly settlement payments have been discussed before. Allow me to articulate and highlight the pain points faced by an investor in this process so you can fill the gaps and improvise:

  1. As the SMS says, settlement may happen anytime during the next 10 days. Will it happen during market hours or after market hours. When in the next 10 days, today, tomorrow, day after. There is a lot of uncertainty in these 10 days.

  2. I may already have a GTT buy order setup and if during the quarterly settlement incidentally the GTT triggers, due to lack of margin, the order won’t be placed and it’s an opportunity loss for me.

  3. The settlement would be done by NEFT transfer and you must be knowing that there is a lag between the payment made by Zerodha and the fund received in the recipient’s bank account. It’s not real-time. Consider I don’t have more funds in my bank account to transfer it to the Zerodha trading account.

  4. To avoid quarterly settlement, I can’t invest in an overnight fund. Although there is no exit load in an overnight fund, there is a T+1 settlement time, a lag again to access my fund.

  5. If I invest that money in Liquidbees, unnecessary DP charges I have to bear while selling to realize margin.

  6. If I invest in Liquidbees and pledge it, I can’t use the margin for delivery orders (remember my GTTs).

So my main question is - can there be a solution to avoid this unnecessary cycle of quarterly settlement initiation by Zerodha, and fund received by us and then we transfer it back to Zerodha. Every quarter we do this unproductive task.

Wait. Please do not jump to a straight ‘No’. Because it’s the easiest thing to say. I am well aware of SEBI guidelines enforcing it. I am only telling that please meditate on my words and see if there lies a viable solution and help us find the liberation from quarterly settlement.

Let me tell you a story.

Jio is a regulated business too where TRAI is the regulatory authority. Now, as per TRAI rules and guidelines, any mobile operator has to send monthly hardcopy bills to postpaid subscribers’ addresses by post. So if you are a postpaid customer, you would receive a paper bill by default. Now this involves printing bills and dispatching them every month which incurs printing and postage charges for the telecom company.

Vodafone and Airtel run ‘go green’ marketing campaigns asking users to opt for e-bill. But the conversion is very low. What Jio did - when you take a Jio postpaid connection, you sign up for Jio Prime program (even while taking a prepaid connection) by paying Rs 99 and in the terms and conditions of the Jio Prime program, it mentions that ‘I agree I do not want a paper bill by default’. So while TRAI rules enforce telecom operators to send paper bills compulsorily, the user taking Jio postpaid connection, by signing up for Jio Prime program is overriding the TRAI rule by giving consent to Jio to send an e-bill by default. If the user wants a paper bill, he can explicitly mention this and would get a paper bill. Even later any time he can call up customer care and ask for a paper bill.

A small step saves crores of monthly expenses for Jio.

I shared this story just so you could think again if there lies a viable solution to get liberation from these quarterly settlement payouts. I am sure, where there is a will, there is a way.

SEBI as a regulator explicitly says what can be done and what cannot be. So there aren’t really grey areas to work with, like in the case of other regulators. They put out circular disallowing brokers to do what we were doing earlier - allowing customers to opt-in for purchasing of liquid funds for settlement. If you have to believe the new articles, this current quarterly settlement norms might change and become tighter. We are working on figuring out how to do fund transfers faster, our bank (largest in India) is still not offering 24 x7 NEFT services. As soon as they do, this issue won’t really be an issue.

@nithin I have a few suggestions:

  1. Can the quarterly settlement payout be initiated by Zerodha only after the market closes and not during market hours? This will ensure that during market hours, funds are available in investor’s accounts so if any orders already placed, they won’t fail due to lack of margin.

  2. Those having an IDFC 3-in-1 account had got it thinking it would be seamless like ICICI Direct or HDFC Securities where the investors don’t have to concern about adding funds. The balance in the bank account serves as margin. Is it how it will work with Zerodha too? If yes, by when. This would eliminate the need of manual retransfer of funds to Zerodha trading account after settlement money is received.

  3. Currently, Zerodha IDFC 3-in-1 account allows one-click to add funds. But this is a manual process.

Can this process be automated to enable auto-load funds? The user can select a minimum amount he always wants to keep in the Zerodha trading account and henceforth as soon as the account balance goes below the threshold levels, it automatically debits IDFC bank account and adds funds.

Paytm Wallet and Amazon Pay are already doing this. The user has to give consent only once. And the wallet is never short of money with a predefined auto-load amount.

If the same is implemented for Zerodha trading account and let say I set up that I want to always maintain Rs 50,000 in my trading account, the moment quarterly settlement process transfer funds to my bank account as compliance, the auto-load gets triggered and instantly Rs 50,000 is automatically added from my IDFC bank account. The idea is I am never short of funds. This feature would also help in generating revenue for Zerodha because people having funds in their account would of course trade.

Is it possible?

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  1. Quarterly settlement is always initiated after the market close. If it hits your bank late is because HDFC still doesn’t allow us to use the new 24x7 NEFT payout.

2/3. Yeah, we will work on these. On our list of things to do.

But like I said earlier, if we can do 24x7 NEFT, we can solve the above problem for all our customers.

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@nithin - The quarterly settlement for my account happened on 29th Jun 2021 (Tue early morning). The funds have not yet reflected in my account so I have lost my trading day today. I know its a SEBI mandate, but one humble request, can the settlement be done on a Friday after trading hours so we will not lose the trading day. The suggestion is to do it on prior Friday of the quarterly date. Thank you.

You should have the funds by now, please check.

We try to do it in a way where client is inconvenienced least, but some things are beyond our control too. Pushing all payouts to happen on Friday’s is difficult.

Thanks. Yes, I got the funds but late for the day. I get you, I hope you understand our situation and would find a solution to this challenge.

NACH is going 24x7 from Aug 1st. Even AMC payouts, salary credits, transaction refunds can be expected on weekends and holidays and one doesn’t have to wait for a bank working day.

What is the issue then making the quarterly settlement on Fridays after the market closes? One can transfer it back on Saturday/ Sunday so on Monday you are ready.

If you read Nithin’s reply above, he has mentioned that settlements happen currently after market closure only. But this case is defying it.

Exactly. With NEFT being 24hrs, you are just on wait mode even if you call bank. Hope NACH going 24x7 would help as settlements can be done over weekends as well.

If you have withdrawn money from your Zerodha account in the recent past, you’ll realize that the funds hit your Bank account early morning itself (between 2am - 4am), much prior to market opening. This is because we’ve already migrated our payout process to a different Bank that offers 24X7 NEFT.

Yday, the Bank had an issue because of which they couldn’t push the payouts during the night and got delayed to morning.

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Okay. But why can’t the quarterly settlement process be initiated on Friday after 3:30 pm (market closure)?
Even if the money is credited to our bank account on Saturday little late, no problem, it’s fine, we have 2 days to send it back to Zerodha trading account and you are ready for Monday morning. You know that investors have GTT setup. This would make sure that investor is mentally at peace and aware that quarterly settlements would happen only on Fridays after market closes.

In @nithin’s words, this is the right thing to do. :pray:

I had raised this point on another thread too but there too didn’t get any answer.

Now that from Aug 1, NACH will be 24x7, if you redeem mutual fund units, AMC would transfer redemption amount even on weekends and holidays and the investor won’t have to wait for a bank working day. Now consider this on Coin, AMC would transfer money to the Zerodha trading account on Saturday or Sunday, but will Zerodha allow us to redeem on weekends or holidays? Or make us wait till Monday.

Again, in Nithin’s words, what is the right thing to do here?
Awaiting reply.

Settlement is done after the day’s trade process is completed, not immediately after market close. There are several dependencies. The period between 2 settlement dates shouldn’t exceed 90 days. We can’t risk limiting settlements to only one day of the week. We’ll do our best to cause as little inconvenience to client as possible.

I know and completely understand that. But then the system can automatically calculate and determine the “last Saturday” in the time frame 90 days from the last settlement date. The next quarterly settlement to happen on that Saturday. Simple it is. No?

@VenuMadhav The last quarterly settlement was triggered on 20th July 2021, which was a Tuesday. The next day, 21st July was a trading holiday for Bakri Id. So it was okay to send the monies back to the trading account in leisure.

But, as I mentioned in the earlier comment, an automated system needs to be devised for quarterly settlements so that investors can rest assured that the quarterly settlements never happen on a weekday.

Making the above suggestion even better and safer, what if the next quarterly settlement happens on the second-last Saturday in the time frame 90 days from 20th July 2021.

If you calculate, 90 days from 20 July, 2021 is 18th October 2021.

Now, calculating the second-last saturday from 18th October 2021 would be - 9th Oct 2021.

So the next quarterly settlement as per the formula should be done on Saturday, 9th October 2021 so it falls on a Saturday, and does not fall on a Weekday and still you have one week remaining (10th - 17th Oct) just in case something goes wrong.

I think this should be the formula to set the quarterly settlement on auto-pilot mode so that investors can be at peace that quarterly settlements always happen on a Saturday.

@nithin I read K’s recent post where he says don’t ask him to do ‘this’, ask him rather why something has to be done. So apart from a solution that I have shared above, which he can of course review, the brief to K at the first place should be that Zerodha wants to stick in investors’ minds that quarterly settlements never happen on a weekday. It always happens on a Saturday so that investors have 2 days, Saturday and Sunday to send the monies back to the trading account so that they are ready for Monday. Investors will not live in fear about when is the quarterly settlement gonna happen and if they forget to add back, their GTT, etc can get affected. Investors will be at peace that quarterly settlements always happen on a Saturday. Why is it important? It encapsulates trust by taking away the ambiguity and uncertainty part of quarterly settlement dates. Human psychology is such that it doesn’t like uncertainty. Also, it makes the Zerodha quarterly settlement on auto-pilot mode. People know when is the next quarterly settlement going to happen. Why a particular day. Again human behaviour recognizes it very well. Remember Vodafone Tuesday when you used to get 1+1 movie tickets? Similarly consistently doing quarterly settlements on Saturdays would make that mind space in investor’s minds.

Hope this is enough to realize the need and the potential.
Let me know what K says on this.