SEBI Approves Conditional Intraday Borrowing for Mutual Funds
Synopsis
In a significant move, SEBI has approved mutual funds to conduct intraday borrowing to ease liquidity issues. This new rule, effective from April 2026, aims to help funds manage short-term cash flow challenges.
Key Takeaways
SEBI allows mutual funds to borrow intraday to manage liquidity.
Framework effective from April 1, 2026.
Intraday borrowings are exempt from the 20% cap under specific conditions.
Borrowings must be approved by the AMCs' board and disclosed on their websites.
Costs of borrowing are borne by AMCs, not investors.
New Delhi, March 16 (NationPress) The Securities and Exchange Board of India (SEBI), which regulates the capital markets, has announced its approval for mutual funds to engage in intraday borrowing under certain conditions to effectively manage short-term liquidity discrepancies.
This novel framework is set to become operational starting April 1, 2026.
As per SEBI's guidance, mutual funds, especially those focused on liquid and overnight schemes, frequently encounter intraday mismatches between the redemption payments owed to investors and the incoming proceeds from instruments like TREPS and reverse repo transactions.
To mitigate this challenge, SEBI has enabled mutual funds to utilize intraday borrowing options from financial institutions, including banks, to temporarily fill the gap between incoming and outgoing funds.
The market regulator emphasized that while borrowing by mutual fund schemes typically has a cap of 20 percent of the scheme’s net assets and a maximum duration of six months, this specific cap will not be applicable to intraday borrowings, provided certain safeguards are met.
Under the new protocol, Asset Management Companies (AMCs) are required to secure the approval of both their board and the board of trustees for utilizing intraday borrowing facilities. Furthermore, the policies governing these borrowings must be publicly disclosed on the AMC's website.
SEBI indicated that intraday borrowings can solely be used for designated purposes, such as the repurchase or redemption of units, interest payments, or income distribution disbursements to unitholders.
Additionally, the regulator specified that the total amount borrowed intraday cannot exceed the guaranteed receivables expected on the same day from entities like the Government of India, the Reserve Bank of India, and the Clearing Corporation of India Limited.
Eligible receivables comprise maturity proceeds from TREPS, reverse repo transactions, government securities, treasury bills, state development loans, and interest on such instruments.
SEBI also clarified that all costs linked to intraday borrowings are the responsibility of the AMC and should not be transferred to investors.
Moreover, the regulator noted that borrowings by equity-oriented index funds and exchange-traded funds (ETFs) due to incomplete sell trades will only be allowed to facilitate participation in the closing auction session within the equity cash segment of stock exchanges.
Point of View
SEBI's new framework for intraday borrowing by mutual funds reflects a proactive approach to liquidity management in the capital markets. This strategic move is designed to enhance operational efficiency and safeguard investor interests, aligning with the nation's commitment to a robust financial ecosystem.
NationPress
2 Jul 2026
Frequently Asked Questions
What is SEBI's new rule regarding intraday borrowing?
SEBI has approved mutual funds to engage in intraday borrowing under specific conditions to manage short-term liquidity mismatches.
When will the new borrowing framework take effect?
The new framework will come into effect from April 1, 2026.
What are the limitations on intraday borrowing?
While typically capped at 20% of the scheme's net assets, this limit does not apply to intraday borrowings, provided safeguards are met.
What can intraday borrowings be used for?
Intraday borrowings can be used for repurchase or redemption of units, payment of interest, or income distribution payouts to unitholders.
Who bears the cost of intraday borrowings?
The Asset Management Companies (AMCs) must absorb all costs associated with intraday borrowings, which cannot be passed on to investors.
