The Securities and Exchange Board of India (SEBI) has issued a new circular allowing mutual funds to take intraday borrowings to manage temporary cash shortages during the day. This facility has been introduced to help mutual funds deal with liquidity mismatches that arise because different financial transactions are settled at different times. The new rules will come into effect from 1 September 2026.
Why Has SEBI Introduced This Facility?
Sometimes, mutual funds have to make payments to investors or complete investment transactions before they receive money from other sources. For example, a mutual fund may have to pay investors who redeem their units, while the money from the sale or maturity of investments is received later in the day. To handle such temporary cash shortages, SEBI has allowed mutual funds to borrow money for a few hours and repay it on the same day.
When Can Mutual Funds Use Intraday Borrowing?
SEBI has allowed mutual funds to use intraday borrowing for several purposes. These include making redemption payments to investors, paying IDCW (Income Distribution cum Capital Withdrawal), interest and other investor payouts, making payments for investments purchased by the scheme, meeting mark-to-market (MTM) obligations and foreign exchange settlements, and repaying existing borrowings.
Borrowing Limit
The amount borrowed should generally be limited to the money that the mutual fund expects to receive on the same day. This includes guaranteed inflows such as money from the RBI, clearing corporations and subscription amounts received from investors. It also includes expected inflows from maturity proceeds and settlement of securities such as bonds, commercial papers, certificates of deposit and OTC swaps. SEBI has also allowed additional borrowing if required to make redemption and other payments to investors.
Conditions for Using the Facility
SEBI has made it clear that intraday borrowings should normally be repaid before the end of the same business day. If the borrowing continues overnight, it must comply with the limits and conditions prescribed under the SEBI Mutual Fund Regulations. Every Asset Management Company (AMC) must prepare a Board-approved policy for using the intraday borrowing facility. This policy must also be published on the AMC’s website. AMCs are required to maintain proper records explaining why the borrowing was needed and how it will be repaid.
Who Will Bear the Cost?
SEBI has clarified that the cost of intraday borrowing will not be passed on to investors. Any borrowing cost or loss caused by delays in receiving expected funds must be borne by the Asset Management Company (AMC). This has been done to protect the interests of mutual fund investors.
Effective Date
The new rules allowing intraday borrowings by mutual funds will become effective from 1 September 2026. SEBI has issued these guidelines to improve liquidity management while ensuring that investors continue to receive timely payments and remain protected.
Click here to download SEBI circular on intraday borrowings
