The Securities and Exchange Board of India (SEBI) has issued a circular operationalising amendments to the SEBI (Mutual Funds) Regulations, 2026, allowing mutual funds to utilise intraday borrowings for a wider range of liquidity management objectives starting September 1, 2026. The move aims to help schemes manage short-term liquidity mismatches arising from variations in market settlement times without adversely affecting investors.
Scope of Intraday Borrowing
Under the new framework, mutual funds can employ intraday borrowings to cover unitholder pay-outs, including redemptions, income distribution-cum-capital withdrawal pay-outs, and interest payments. Additionally, the facility extends to mark-to-market obligations, foreign exchange settlements, repayment of existing borrowings, and pay-ins related to investments made through schemes.
SEBI has capped the borrowing amount. Guaranteed receivables—such as inflows from the Reserve Bank of India, clearing companies, and subscription funds received in scheme bank accounts—can support intraday borrowings. Funds may also borrow against non-guaranteed receivables expected by end of day, including settlement inflows and maturity proceeds from instruments like commercial papers, non-convertible debentures, certificates of deposit, and over-the-counter swaps.
Limits and Repayment Rules
Asset management companies (AMCs) may only use intraday borrowings above these receivables to meet investor pay-outs and redemption requests permitted under the 2026 regulations. According to SEBI, AMCs are responsible for ensuring all intraday borrowings are repaid by the close of the trading day. Any borrowing extending into an overnight loan must comply with existing regulatory restrictions and permissible uses.
Importantly, SEBI stated that AMCs cannot pass on to investors the cost of intraday borrowings or any losses resulting from unexpected problems or delays in collecting anticipated cash. The circular takes effect on September 1, 2026.
Governance and Disclosure Requirements
To enhance governance, mutual fund trustees and AMC boards must approve a policy governing the use of intraday borrowings. The policy, covering approval procedures and monitoring systems, must be disclosed on the AMC's website. Additionally, AMCs must maintain scheme-specific documents outlining the liquidity mismatch that necessitated the borrowing and the planned source of repayment.
