What is Settlement Holiday?

Introduction

The stock market in India functions on set regulations. You need a trading account to buy and sell stocks. Whatever you buy gets credited to your Demat account, and whatever you sell gets debited from there. A Demat account is very similar to a bank account or bank locker. 

However, when trading stocks in India, equity settlements take place after two days of trading, i.e. T+2, where 'T' stands for trade day or the day you traded. For example, if you buy stocks on Friday, your shares would get credited to your Demat account on Tuesday. The reason is Saturday and Sunday are not considered working days. Therefore, Monday would be T+1, while Tuesday would be T+2. Hence, the settlement day would be Tuesday, and it is known as Normal settlement. Having understood what a settlement day is, now let us comprehend what a settlement holiday is, and how NSE holidays, BSE holidays, and share market holidays are interlinked to it. 

What Is a Settlement Holiday?

When exchanges are open for trade and you can buy and sell stocks, but the depositories are closed, which in turn would restrict you from taking the delivery of your stocks into your Demat account, such days are termed as settlement holidays. 

Points to Remember:

• We have two stock exchanges in India, viz the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange).
• There are two depositories in India, viz the NSDL (National Securities Depository Limited) and the CDSL (Central Depository Securities Limited).
• Settlement Holidays occur due to bank holidays, or for any other reason when the depositories are closed.
• Saturday and Sunday are always settlement holidays by default.
• A settlement holiday causes one day's delay for your shares to get deposited in your Demat account. In other words, it adds an extra working day in settling your Demat account.

Example:

Suppose, you bought stocks on the 25th of January, 2021 which was a Monday. 

Now, 26th January being Republic Day, it is a settlement holiday. 

Hence, as per trading rules in India, the stocks bought on Monday would reflect, and get settled, in your Demat account on Thursday, the 28th of January'2021. 

Wednesday was T+1, while Thursday was T+2 when the stocks get credited into your account. 

Final Take

Settlement holidays are a total of NSE holidays, BSE holidays, and all other share market holidays. When trading, one should always keep the settlement holiday list in mind so that there is no confusion regarding the calculation of settlement days for their respective trading transactions into their Demat accounts.