Market regulator Securities and Exchange Board of India (Sebi) has proposed expanding the scope of intraday borrowing facilities for mutual funds, allowing fund houses to use such borrowings for a wider range of cash management needs beyond just redemption payouts.
The market watchdog released a consultation paper on Wednesday, seeking public comments on this by June 3, 2026.
The market regulator said the move follows representations from the Association of Mutual Funds in India (AMFI) and aims to address operational timing mismatches between payout obligations and receipt of funds from various sources. Sebi noted that while intraday borrowings were earlier permitted mainly to bridge gaps linked to guaranteed receivables from entities such as the Government of India, RBI and CCIL, mutual funds increasingly use such facilities for broader liquidity management purposes.
According to AMFI’s submission, mutual funds often face timing mismatches due to differences in settlement cycles across equity, debt and hybrid schemes. For instance, pay-in obligations for trades may arise early in the morning while receivables from sales or TREPS deployments are credited only later in the day.
Settlement timings
Sebi said intraday borrowing facilities are currently being used for purposes such as trade settlements, forex settlements, derivative margin obligations and repayment of existing borrowings, apart from meeting redemption requests. The regulator also highlighted that the quantum of such borrowings can sometimes exceed receivables, provided the borrowings are extinguished by the end of the day or converted into overnight borrowings within regulatory limits.
Under the proposal, Sebi has suggested permitting AMCs to avail intraday borrowing for purposes other than redemption payouts and allowing these borrowings to exceed both guaranteed and non-guaranteed receivables. However, AMCs would remain responsible for ensuring repayment within the same day and compliance with overnight borrowing limits prescribed under mutual fund regulations.
The regulator said the absence of intraday borrowing flexibility could affect fund management efficiency and scheme returns, as receivables credited later in the day may not be effectively deployed and fund managers may face constraints in executing buy and sell transactions on the same day.
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