Sebi proposes wider intraday borrowing use for mutual funds to ease cash management, invites comments by June 3
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Markets regulator Sebi on Wednesday proposed allowing mutual funds to use intraday borrowing lines for a wider range of cash management needs, including trade settlements, forex obligations and derivative margin payments, beyond just meeting redemption payouts.
The proposal seeks to address operational challenges faced by asset management companies (AMCs) due to timing mismatches between outflows and receivables within a scheme.
At present, intraday borrowing serves as an important cash flow management tool for mutual fund schemes and helps fund managers meet payout obligations and settlement requirements efficiently, Sebi said in the consultation paper.
Under the proposal, AMCs may be permitted to avail intraday borrowings not only for redemption or unitholder payouts but also for purposes such as pay-in obligations for trades, forex settlements, mark-to-market payments on derivative positions and repayment of existing borrowings.
Also, the regulator has proposed that the amount borrowed intraday need not be restricted to guaranteed receivables from entities such as the Government of India, the Reserve Bank of India, the Clearing Corporation of India Ltd (CCIL) and other clearing corporations.
"Intraday borrowings can exceed receivables (both guaranteed or otherwise). However, it is the responsibility of the AMCs that such intraday borrowings are repaid by end of the day and any intraday borrowing converted to overnight borrowing shall be within regulatory limits and for the purposes allowed in Sebi Mutual Funds) Regulations, 2026," Sebi said.
The regulations permit mutual funds to borrow up to 20% of a scheme's net assets for up to six months to meet temporary liquidity needs such as redemptions, interest payments and certain trade settlements by equity-oriented index funds and exchange traded funds.
Sebi noted that without intraday borrowing facilities, fund managers may face constraints in executing buy and sell decisions on the same day, potentially affecting returns.
"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 regulator said.
The market regulator further proposed that any charge or cost associated with availing intraday borrowings should continue to be borne by the AMC and not charged to the scheme.
The proposal follows representations from the Association of Mutual Funds in India (AMFI), which highlighted that intraday borrowing is routinely used to bridge short-term timing gaps arising from settlements across asset classes.
The Securities and Exchange Board of India (Sebi) invited public comments on the proposals until June 3.
The regulator had earlier introduced a carve-out for intraday borrowings in the Sebi (Mutual Funds) Regulations, 2026, effective April 1. Operational guidelines were issued through a circular dated March 13, but implementation was deferred to July 15 after industry body Amfi and AMCs flagged operational difficulties.