T+1 stock settlement refers to the process of settling a stock trade one day after the trade date. In other words, T+1 settlement means that when a trade is executed on Monday, it will be settled on Tuesday. From 27th January 2023 onwards, this is the new standard settlement cycle for all stock trades in India.
When a trade is executed, the buyer and seller agree to the terms of the trade, including the price and the number of shares. However, the actual exchange of money and securities takes place on a later date, which is known as the settlement date.
The T+1 settlement cycle helps to reduce the risk of trade failure, as it gives both the buyer and seller more time to ensure that they have the necessary funds and securities to complete the trade. It also allows for the processing and clearing of trades by the relevant parties, such as the stock exchange and the clearinghouse.
T+1 is one of the standard settlement cycles, others being T+2, T+3, and T+0. The T+0 is typically used for day-trading or high-frequency trading, where the trade and settlement happen on the same day.