SEBI Rules Shake Up Market Practice: Intraday Borrowing Permitted for Mutual Funds Facing Cash Flow Gaps
SEBI Amends Mutual Fund Regulations to Ease Intra-Day Lending Constraints
The Securities and Exchange Board of India (SEBI) has introduced significant amendments to the Securities and Exchange Board of India (Mutual Funds) Regulations, 2026. The changes, notified on July 3, 2026, aim to provide greater operational flexibility to mutual funds concerning liquidity management and timing mismatches between inflows and outflows.The new regulations specify conditions under which mutual funds can utilize intraday borrowing facilities. These adjustments are made in accordance with the powers conferred by Section 30 read with Section 11(2)(c) of the Securities and Exchange Board of India Act, 1992.
Key Change: Intraday Borrowing for Cash Flow Management
The primary modification targets Regulation 42(2) within Chapter VII of the Mutual Funds Regulations, 2026. Previously, regulations governed certain aspects related to fund accounting and borrowing ability. The amendment addresses situations where there is a timing mismatch between cash outflows and cash inflows of a scheme.Regulation 42(2), as amended, explicitly states that nothing in sub-regulation (1) shall restrict the mutual funds from intraday borrowing for addressing this specific timing mismatch. This provision is subject to necessary conditions set by SEBI.
Operational Impact on Fund Management
The allowance for intraday borrowing provides a crucial operational buffer for asset management firms. The change helps mitigate potential liquidity strains that arise when fund outflows are not perfectly aligned with incoming capital or investment returns.By permitting this facility, the amendment empowers funds to maintain smoother operational continuity despite short-term cash flow irregularities. This measure is set to enhance resilience within the mutual fund ecosystem.
Scope and Implementation of the Amendments
These newly introduced Securities and Exchange Board of India (Mutual Funds) (Amendment) Regulations, 2026 will come into force on the date of their publication in the Official Gazette. They directly modify the existing structure detailed under the Mutual Funds Regulations, 2026.The regulations reinforce SEBI's continuous efforts to update market frameworks and ensure that fund operations remain robust and adaptive to dynamic market conditions. The Board has mandated that all such borrowing must adhere strictly to the operational parameters set forth by SEBI.
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