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SEBI Allows Intraday Borrowing for Mutual Funds to Manage Liquidity Gaps

SEBI has introduced a new framework permitting mutual funds to undertake intraday borrowings from banks to address temporary liquidity shortfalls between investor redemptions and incoming maturity proceeds. The facility, effective from April 2026, is exempt from the standard 20% net asset borrowing limit but comes with strict conditions and safeguards. Asset Management Companies must get board approvals, disclose their policy, and ensure borrowings do not exceed guaranteed same-day receivables. All associated costs must be absorbed by the AMC and cannot be passed on to the fund's investors.

Key Points: SEBI Permits Mutual Funds Intraday Borrowing with Conditions

  • Manages redemption-inflow mismatches
  • Exempt from 20% borrowing cap
  • AMC bears cost, not investors
  • Effective April 1, 2026
2 min read

SEBI gives nod to intraday borrowing by mutual funds with conditions

SEBI allows mutual funds to use intraday borrowing from banks to manage short-term liquidity mismatches, effective April 2026.

"permitted mutual funds to access intraday borrowing facilities from financial institutions such as banks - SEBI Circular"

New Delhi, March 16

Capital markets regulator, the Securities and Exchange Board of India, declared that it has allowed mutual funds to undertake intraday borrowings under specified conditions to manage short-term liquidity mismatches.

In a circular, SEBI said the new framework will come into effect from April 1, 2026.

According to the regulator, mutual funds -- particularly liquid and overnight schemes -- often face an intraday mismatch between redemption payouts to investors and the receipt of maturity proceeds from instruments such as TREPS and reverse repo transactions.

To address this issue, SEBI has permitted mutual funds to access intraday borrowing facilities from financial institutions such as banks to bridge the temporary gap between inflows and outflows of funds.

The market watchdog also clarified that while borrowings by mutual fund schemes are generally capped at 20 per cent of the scheme's net assets and limited to a maximum duration of six months, this limit will not apply to intraday borrowings, subject to certain safeguards.

Under the new framework, asset management companies (AMCs) must obtain approval from their board as well as the board of trustees for the use of intraday borrowing facilities. The policy governing such borrowings must also be disclosed on the AMC's website.

SEBI said intraday borrowings can only be used for specific purposes such as repurchase or redemption of units, payment of interest, or income distribution payouts to unitholders.

The regulator further stipulated that the amount borrowed intraday must not exceed guaranteed receivables due on the same day from entities such as the Government of India, the Reserve Bank of India and the Clearing Corporation of India Limited.

Eligible receivables include maturity proceeds from TREPS, reverse repo transactions, government securities, treasury bills, state development loans, and interest payments on such instruments.

SEBI also said that any cost associated with intraday borrowings must be borne by the AMC and not passed on to investors.

Moreover, the regulator clarified that borrowings by equity-oriented index funds and exchange-traded funds (ETFs) due to under-execution of sell trades will be permitted only for participation in the closing auction session in the equity cash segment of stock exchanges.

- IANS

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Reader Comments

A
Aditya G
Good step for market stability. The 2026 effective date gives AMCs enough time to set up proper systems and board approvals. Hope this prevents any forced selling of assets by funds just to meet redemptions.
R
Rohit P
The safeguards seem robust - limiting borrowing to guaranteed receivables and requiring board approvals. But I have a small concern: will this create an over-reliance on intraday debt? Need to ensure AMCs don't get complacent with their liquidity management.
S
Sarah B
As someone who invests in liquid funds for parking short-term savings, this is reassuring. The transparency requirement of putting the policy on the AMC website is excellent. Will definitely check my fund house's policy once it's up.
K
Karthik V
Finally! This addresses a real operational headache. The clarification for equity ETFs is also important for smooth functioning. SEBI is slowly modernizing our market infrastructure to match global standards. Bharat's mutual fund industry is growing up.
M
Michael C
The detail about the borrowing limit not applying is significant. It shows SEBI recognizes that intraday is fundamentally different. However, the proof will be in the implementation. Hope the oversight is strong to prevent any misuse.

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