SEBI allows wider use of intraday borrowings by MFs from September 1

The Securities and Exchange Board of India (SEBI) has notified the purposes for which mutual funds can avail intraday borrowings, broadening the framework to help asset management companies (AMCs) manage short-term liquidity mismatches arising during the trading day.

The revised framework will come into effect from September 1, 2026.

Under a circular issued on Friday, mutual funds will be allowed to use intraday borrowings to meet unitholder payout obligations, including redemptions, Income Distribution-cum-Capital Withdrawal (IDCW) payouts and interest payments. The facility can also be used to meet pay-in obligations for investments made by schemes, mark-to-market (MTM) obligations, foreign exchange settlements and the repayment of existing borrowings.

The framework aims to address liquidity mismatches arising from differences in market settlement timings. To facilitate this, mutual funds may borrow against guaranteed receivables such as subscription inflows, payments from the Reserve Bank of India and clearing corporations.

They may also avail borrowings against non-guaranteed receivables expected to be realised by the end of the trading day, including maturity proceeds and secondary market settlements involving instruments such as non-convertible debentures, commercial papers, certificates of deposit and over-the-counter swaps.

Also read:SEBI eases intraday borrowing norms for mutual funds to manage liquidity mismatches

SEBI has also permitted AMCs to avail additional intraday borrowings exclusively to meet redemption requests and other unitholder payout obligations permitted under the Mutual Funds Regulations, 2026.

However, AMCs must ensure that all intraday borrowings are repaid before the close of the trading day. Any borrowing that extends overnight must remain within the prescribed regulatory borrowing limits and comply with the purposes permitted under the regulations.

The regulator has directed the boards of AMCs and trustees of mutual funds to approve a policy governing the use of the intraday borrowing facility and publish it on the AMC's website. The policy must outline approval processes and monitoring mechanisms, while AMCs will also be required to maintain scheme-wise records detailing the underlying liquidity mismatch and the expected source of repayment.

SEBI further clarified that the cost of intraday borrowings, along with any losses arising from delays in receiving expected funds, will continue to be borne by the AMC. Such costs, it said, must not be passed on to mutual fund investors.