Sebi plans broader use for intraday borrowing by MFs

Mumbai: The Securities and Exchange Board of India (Sebi) on Wednesday proposed broadening the use of intraday borrowing facilities by mutual funds, treating them as a cash management tool rather than limiting them only to redemption payouts.

“…the requirement of intraday borrowings arises due to timing mismatches in outflows by schemes vis-a-vis’ receivables from different sources. Further, in case such intraday borrowings are not carried out by mutual funds, the same would lead to impact on fund management flexibility and returns of the scheme,” Sebi said in a discussion paper on Wednesday.

The regulator said intraday borrowings are availed by mutual funds from banks to meet the intraday liquidity requirement arising on account of timing mismatch between outflows in a scheme such as meeting redemptions and receivables from different sources such as pay-out receivables and maturity receivables.

“Since the pay-in has to be made before specific cut-off timings, the scheme receivables received later in the evening cannot be deployed effectively which may impact the returns of the scheme.

The fund manager’s decision making would be impacted due to inability to make buy and sell trades during the same day,” Sebi said.