SEBI Unlocks Intraday Liquidity: Key Changes Proposed for Mutual Funds' Borrowing Rules

SEBI Unlocks Intraday Liquidity: Key Changes Proposed for Mutual Funds' Borrowing Rules​

The Securities and Exchange Board of India (SEBI) has released a comprehensive Consultation Paper addressing the utilization of intraday borrowing lines by Mutual Funds (AMCs). The proposal seeks to redefine how these funds manage daily cash flows, potentially streamlining operations and enhancing investment flexibility across the asset management sector.

The paper aims to garner expert and public comments on allowing AMCs to utilize intraday borrowing facilities for a broader set of purposes beyond just meeting unitholder redemptions. This move is set to reshape the operational mechanics of fund management in India.

Understanding the Proposal's Objective and Background​

The primary objective of the consultation is to solicit comments on recognizing intraday borrowing facilities as a broader cash management tool for Mutual Funds. SEBI intends to define necessary safeguards while ensuring consistency across all AMCs in their day-to-day practices.

The current framework evolved after a representation by the Association of Mutual Funds in India (AMFI). This representation highlighted the critical timing gap between redemption payouts and the receipt of guaranteed receivables from major sources like the Government of India (GoI) and the Reserve Bank of India (RBI).

While a carve out for these borrowings was enabled in SEBI (Mutual Funds) Regulations, 2026, the guidelines have been subject to adjustments. Following operational challenges raised by the industry, the applicability of the existing guidelines was deferred till July 15, 2026.

The Need for Enhanced Liquidity Management​

According to AMFI, intraday borrowing is crucial for bridging the immediate liquidity mismatch inherent in the financial markets. AMCs typically avail these borrowings from banks to cover intraday requirements.

This requirement arises from the time difference between when a scheme incurs outflows, such as pay-in obligations or redemptions, and when the funds from various receivables are actually received. Intraday borrowing enables AMCs to meet payout obligations early in the day.

The operational necessity is starkly illustrated by the settlement timings across different schemes. For instance, while some schemes receive funds in the evening, post 5 P.M., the required pay-ins for T+1 settlements must often be completed by 10 A.M.

Expanding the Scope of Intraday Borrowing Purposes​

Currently, the regulatory focus is narrowly placed on borrowing used to meet redemption payouts. However, AMFI has argued that the necessity extends far beyond redemptions.

The facility is also critical for managing trade settlements, including pay-in obligations, executing foreign exchange settlements, and fulfilling derivative obligations.

AMFI's submission further clarifies that the quantum of borrowings is not limited to guaranteed receivables only. It can also exceed both guaranteed and non-guaranteed inflows, such as those from secondary market settlements or maturing commercial papers.

Key Proposals Under Consultation​

SEBI has formulated specific proposals seeking public input on expanding the scope of intraday borrowing. These proposals address three core areas: purpose expansion, receivable limits, and risk management.

First, SEBI seeks comments on allowing AMCs to avail intraday borrowings for purposes beyond redemption/unitholder payouts. This would include the operational requirements detailed by AMFI, such as trade settlements and forex obligations.

Second, the Board is consulting on allowing intraday borrowings to exceed receivables. The key caveat remains the responsibility of the AMCs to repay these funds by the end of the day.

Third, the consultation focuses on the overall appropriateness of allowing the quantum of intraday borrowings to exceed receivables. The accompanying regulatory guidance ensures that any resulting overnight borrowings must adhere strictly to the existing statutory limits and rules.

In line with existing regulations, the paper reiterates that any charge or cost levied for availing intraday borrowings must be borne entirely by the respective AMCs.

The public is invited to submit detailed comments and suggestions on these critical proposals by June 3, 2026, to help shape the future of liquidity management in India's mutual fund industry.