SEBI Mutual Funds
Cloud TV Desk: India’s capital markets regulator, the Securities and Exchange Board of India (SEBI), has widened the scope of intraday borrowings for mutual funds, introducing a new liquidity management framework that will come into force on September 1, 2026. The regulatory reform is designed to help mutual fund schemes efficiently manage temporary liquidity mismatches arising from differences in settlement timings without compromising investor protection.
Under the revised framework, mutual funds will be permitted to use intraday borrowing facilities for a broader range of operational purposes beyond investor redemptions.
Previously, such borrowings were largely restricted to redemption-related obligations. The updated rules now allow fund houses to utilize intraday borrowings for redemption payouts, Income Distribution-cum-Capital Withdrawal (IDCW) payments, interest payments, investment-related pay-ins, derivative mark-to-market obligations, foreign exchange settlements, and repayment of existing borrowings.
SEBI said the objective is to address temporary cash flow mismatches that naturally occur because payment obligations and incoming funds often settle at different times during the trading day.
However, the regulator has retained strict safeguards. All intraday borrowings must be fully repaid before the end of the same trading day. The framework also specifies that the borrowing cost must be borne entirely by the concerned Asset Management Company (AMC) and cannot be passed on to mutual fund schemes or investors.
The revised rules also specify eligible receivables against which such borrowings may be obtained, including guaranteed inflows from institutions such as the Reserve Bank of India, clearing corporations, and subscription proceeds. Certain expected same-day non-guaranteed receivables may also be considered under prescribed conditions.
Industry participants had earlier argued that restricting intraday borrowings only to redemption obligations limited operational flexibility. Following consultations, SEBI decided to broaden the framework while maintaining robust risk controls.
Market experts believe the move will improve settlement efficiency, reduce operational friction, strengthen liquidity management, and support the growing scale of India’s mutual fund industry. Importantly, since the borrowing remains intraday and cannot be carried forward, the changes are not expected to increase leverage or materially alter investor risk.
The new framework will apply to all mutual funds, asset management companies, trustee companies, boards of trustees, and the Association of Mutual Funds in India (AMFI) from September 1, 2026.
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