SEBI Greenlights Intraday Borrowing for Mutual Funds, Addressing Liquidity Mismatches in Market Settlement

SEBI Greenlights Intraday Borrowing for Mutual Funds, Addressing Liquidity Mismatches in Market Settlement​

SEBI has introduced significant amendments permitting mutual funds to avail intraday borrowing facilities. This move aims to address inherent liquidity mismatches arising from differences in market settlement timings within the financial ecosystem. The new regulations are set to override previous guidelines concerning fund borrowings, enhancing operational flexibility while strictly maintaining investor protection protocols.

SEBI Amendments Target Liquidity Gaps in Mutual Funds​

In a key regulatory action, SEBI modified the SEBI (Mutual Funds) Regulations, 2026. This amendment was carried out vide Gazette Notification no. CG-MH-E-07072026-274229 dated July 3, 2026. The facility allows mutual funds to undertake intraday borrowing for several specified purposes.

The amendments supersede prior guidelines laid out in the March 20, 2026 Master Circular and a subsequent SEBI Circular from March 25, 2026. This formal change introduces structured conditions governing these borrowings across all Asset Management Companies (AMCs) and their trustees.

Permitted Uses for Intraday Borrowing by Mutual Funds​

Mutual funds can utilize this intraday borrowing facility for various operational requirements. These purposes include managing unitholder pay-outs such as redemptions, IDCW payouts, and interest payments. The facilities are also available for investments made by the scheme and to settle MTM obligations and foreign exchange matters. Furthermore, funds may use the borrowing window to repay existing borrowings.

Quantum and Limits of Intraday Borrowings Explained​

The quantum of intraday borrowings is strictly limited based on receivables. This limit encompasses guaranteed receivables, such as subscription inflows received in scheme bank accounts or inflows from RBI and Clearing Corporations. It also covers non-guaranteed receivables sighted during the day, which include maturity proceeds and secondary market settlements from NCDs, CP, CDs, and OTC Swaps.

A special provision allows AMCs to take intraday borrowing beyond these standard limits. This additional borrowing may be utilized solely for meeting redemption and other pay-outs owed to unitholders as defined under Regulation 42(1) of the SEBI (Mutual Funds) Regulations, 2026.

AMC Accountability and Compliance Requirements​

AMCs bear substantial responsibility in managing these intraday borrowings. They must ensure that all borrowed funds are repaid by the end of the day. Any borrowing converted into an overnight loan must remain within regulatory limits and comply with Regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026.

Boards of AMC and Trustees of a mutual fund are required to approve the policy for using this facility. This policy must be published on the AMC's website and should detail approval processes along with monitoring mechanisms. AMCs must also maintain scheme-wise records detailing the underlying liquidity mismatch and the expected source of repayment.

Cost Bearing and Regulatory Oversight​

The cost of intraday borrowing, if incurred, is to be borne entirely by the AMC. Similarly, any loss or cost arising from unforeseen events or delays in receiving receivables must also be covered by the AMC. This rigorous compliance framework ensures that the stability of investor interests remains paramount throughout this liquidity management mechanism.

This circular, which addresses crucial market operational aspects, comes into effect from September 1, 2026. It is issued under the powers conferred by Section 11 (1) of the Securities and Exchange Board of India Act, 1992.