Sebi allows mutual funds to use intraday borrowing to manage liquidity mismatches

Sebi has allowed mutual funds to use intraday borrowing facilities to manage short-term liquidity mismatches arising from differences in market settlement timings. The new framework will come into effect from September 1, 2026. It will apply to all mutual funds, asset management companies, trustee companies, boards of trustees and AMFI. The circular replaces earlier guidelines on mutual fund borrowings under Sebi’s master circular and a March 25 circular.Under the new rules, mutual funds can use intraday borrowings for unitholder payouts such as redemptions, IDCW payouts and interest payments. They can also use the facility for pay-ins related to investments made by a scheme, mark-to-market obligations, foreign exchange settlements and repayment of existing borrowings.

The borrowing limit will be linked to expected receivables. Sebi said mutual funds can borrow against guaranteed receivables such as inflows from the Reserve Bank of India, clearing corporations and subscription money already received in scheme bank accounts.

They can also use the facility against non-guaranteed receivables seen during the day, such as maturity proceeds or secondary market settlement from non-convertible debentures, commercial papers, certificates of deposit and over-the-counter swaps, provided the money is expected to come in by the end of the day.

Sebi has also allowed AMCs to use intraday borrowing beyond these receivables only for meeting redemption and other payouts to unitholders, as specified under the mutual fund regulations.

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The regulator said AMCs will be responsible for ensuring that intraday borrowings are repaid by the end of the day. If any intraday borrowing turns into overnight borrowing, it must stay within the regulatory limits and must be used only for purposes allowed under the regulations.

Boards of AMCs and trustees will have to approve a policy for using the intraday borrowing facility. This policy must be made available on the AMC’s website and should include approval processes and monitoring mechanisms.

AMCs will also have to maintain scheme-wise records showing the liquidity mismatch and the expected source of repayment for the intraday borrowing.

Sebi said the cost of intraday borrowing, if any, will have to be borne by the AMC. Any loss or cost due to an unforeseen event or delay in receiving expected receivables will also be borne by the AMC, not the scheme investors.

The move is aimed at giving mutual funds a limited liquidity tool without passing the cost or risk to unitholders. It also gives AMCs operational flexibility to handle timing gaps between pay-ins and pay-outs, especially on days when redemption pressure or settlement flows create temporary mismatches.