The Securities and Exchange Board of India (SEBI) has issued new guidelines allowing mutual funds to undertake intraday borrowing from banks and other financial institutions to manage temporary liquidity mismatches during daily operations. The framework will come into effect from April 1, 2026, and aims to ensure smoother redemption payments while strengthening investor protection.

Key Highlights

• SEBI allows mutual funds intraday borrowing from banks to manage temporary liquidity mismatches during redemptions.
• Borrowings capped to same-day receivables with AMC boards required to approve and disclose borrowing policies.

Under the revised framework, asset management companies (AMCs) and their boards of trustees must approve a formal policy governing intraday borrowing facilities. This policy must also be publicly disclosed on the AMC’s website to enhance transparency and regulatory oversight.

SEBI clarified that such borrowings can be used only for specific purposes, including repurchase or redemption of units, payment of interest, and Income Distribution-cum-Capital Withdrawal (IDCW) payouts to investors. The borrowing facility cannot be used for investment activities and is intended solely to bridge short-term cash flow mismatches during settlement cycles.

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Importantly, the regulator has capped intraday borrowing to the value of guaranteed receivables expected on the same day. Eligible receivables include maturity proceeds from instruments such as TREPS (Triparty Repo), reverse repo transactions, government securities, Treasury Bills, and State Development Loans. This requirement ensures that borrowings remain backed by confirmed inflows and do not expose mutual fund schemes to excessive risk.

SEBI also clarified that any borrowing costs or losses arising from delays in receivables must be borne by the AMC and not the mutual fund scheme, protecting investors from additional expenses.

The move formalizes an existing industry practice, particularly among liquid and overnight mutual fund schemes, where redemption payments are often processed early while inflows from maturing securities arrive later the same day. By codifying the rules, SEBI aims to bring greater consistency, transparency, and operational efficiency to the mutual fund industry while safeguarding investor interests.