Explained: Why Sebi has expanded intraday borrowing rules for mutual funds and what it means for investors

The Securities and Exchange Board of India (Sebi) has widened the scope of intraday borrowing for mutual funds, giving asset management companies (AMCs) greater flexibility to manage temporary cash-flow mismatches during the trading day. The revised framework will come into effect from September 1, following amendments to the Sebi (Mutual Funds) Regulations, 2026. Here's what has changed and why it matters.

What has Sebi changed?

Earlier, mutual funds could borrow only to meet temporary liquidity requirements for redemption and other unitholder payouts, subject to prescribed limits. Under the revised framework, Sebi has expanded the permissible uses of intraday borrowing to include:

Pay-in obligations for investments made by mutual fund schemes.

Mark-to-market (MTM) obligations and foreign exchange settlements.

Repayment of existing borrowings.

Redemption and other payouts to unitholders.

The regulator said the move is aimed at helping mutual funds manage liquidity mismatches arising from differences in settlement timings across markets. The proposal was approved by Sebi's board in June and will take effect from September 1, 2026.

Why was the change needed?

Mutual fund schemes often receive money and make payments at different times during the day. While funds may be due to arrive later, payment obligations, such as security settlements or redemption payouts, may arise earlier.

The revised framework allows AMCs to bridge these short-term timing gaps through intraday borrowing instead of facing settlement delays or operational disruptions.

What can AMCs borrow against?

Sebi has allowed AMCs to avail intraday borrowing against receivables expected during the same day.

These include; guaranteed inflows such as funds from the Reserve Bank of India (RBI), clearing corporations and subscription proceeds credited to scheme bank accounts and non-guaranteed receivables expected before the end of the day, including maturity proceeds and secondary market settlements from instruments such as non-convertible debentures (NCDs), commercial papers (CPs), certificates of deposit (CDs) and over-the-counter (OTC) swaps.

In addition, AMCs can borrow beyond these receivables solely to meet redemption and other unitholder payout obligations permitted under mutual fund regulations.

What safeguards have Sebi introduced?

To ensure that the facility is used only for short-term liquidity management, Sebi has put in place several safeguards:

All intraday borrowings must be repaid by the end of the same day.

Any borrowing that extends overnight must remain within the regulatory borrowing limits and can only be used for purposes permitted under the mutual fund regulations.

AMC boards and trustees must approve a detailed policy governing intraday borrowing, including approval processes and monitoring mechanisms. The policy must also be disclosed on the AMC's website.

AMCs must maintain scheme-wise records explaining the liquidity mismatch and the expected source of repayment for every intraday borrowing.

Who bears the cost?

Sebi has clarified that the cost of intraday borrowing, as well as any additional cost or loss arising from delays or failure to receive expected receivables, must be borne by the asset management company, not by the mutual fund scheme or its investors.

What does this mean for investors?

For mutual fund investors, the change is primarily an operational reform rather than an investment-related one. By allowing AMCs to better manage short-term cash-flow mismatches, the framework is expected to improve settlement efficiency and reduce the risk of payment delays without transferring the associated borrowing costs to investors.