SEBI Allows Mutual Funds Intraday Borrowing to Manage Liquidity from 2026

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