Mutual funds will be allowed to use intraday borrowings for a wider range of liquidity management purposes from September 1, after the market regulator SEBI issued a circular operationalising amendments to the SEBI (Mutual Funds) Regulations, 2026. The move is aimed at helping mutual fund schemes manage temporary liquidity mismatches arising from differences in market settlement timings without affecting investors.
Under the new framework, mutual funds can avail intraday borrowings to meet unitholder pay-outs, including redemptions, income distribution-cum-capital withdrawal pay-outs and interest payments. The facility can also be used for pay-ins related to investments made by schemes, mark-to-market obligations, foreign exchange settlements and repayment of existing borrowings.
SEBI has, however, placed limits on the amount that can be borrowed. Intraday borrowings can be backed by guaranteed receivables such as inflows from the Reserve Bank of India, clearing corporations and subscription proceeds received in scheme bank accounts. Funds can also borrow against non-guaranteed receivables expected to be received by the end of the day, including maturity proceeds and settlement inflows from instruments such as non-convertible debentures, commercial papers, certificates of deposit and over-the-counter swaps.
In addition, asset management companies may avail intraday borrowings beyond these receivables exclusively to meet redemption requests and other investor pay-outs permitted under the SEBI Mutual Funds Regulations, 2026.
The regulator has made it clear that asset management companies (AMCs) will be responsible for ensuring that all intraday borrowings are repaid before the end of the trading day. Any borrowing that spills over into an overnight borrowing must comply with existing regulatory limits and permissible purposes.
To strengthen governance, the boards of AMCs and trustees of mutual funds must approve a policy governing the use of intraday borrowings. The policy, covering approval processes and monitoring mechanisms, must also be disclosed on the AMC's website.
AMCs will also have to maintain scheme-wise records explaining the liquidity mismatch that necessitated the borrowing and the expected source of repayment.
ly, SEBI has stated that the cost of intraday borrowings, as well as any losses arising from delays or unforeseen issues in receiving expected funds, must be borne by the AMC and cannot be passed on to investors. The circular will come into effect from September 1, 2026.