The Securities and Exchange Board of India (SEBI) has proposed allowing mutual fund schemes to use intraday borrowing lines as a cash management tool. According to the consultation paper, the proposal seeks to address operational challenges faced by asset management companies (AMCs) due to timing mismatches between outflows and receivables within a scheme. The regulator invited public comments on the proposals until June 3, 2026.
Under the proposed framework, AMCs may be permitted to avail intraday borrowings not only for redemption or unitholder payouts but also for pay-in obligations for trades, forex settlements, mark-to-market payments on derivative positions and repayment of existing borrowings. As reported by SEBI, the amount borrowed intraday need not be restricted to guaranteed receivables from entities such as the Government of India, the Reserve Bank of India, the Clearing Corporation of India Ltd (CCIL) and other clearing corporations. The regulations currently permit mutual funds to borrow up to 20% of a scheme's net assets for up to six months to meet temporary liquidity needs.
SEBI noted that without intraday borrowing facilities, fund managers may face constraints in executing buy and sell decisions on the same day, potentially affecting returns. According to the regulator, since the pay-in has to be made before specific cut-off timings, the scheme receivables received later in the evening cannot be deployed effectively, which may impact the returns of the scheme. The proposal follows representations from the Association of Mutual Funds in India (AMFI), which highlighted that intraday borrowing is routinely used to bridge short-term timing gaps arising from settlements across asset classes.
SEBI has proposed that intraday borrowings can exceed receivables (both guaranteed or otherwise), with the responsibility on AMCs to ensure such borrowings are repaid by end of the day. Any intraday borrowing converted to overnight borrowing shall be within regulatory limits and for the purposes allowed in SEBI Mutual Funds Regulations, 2026. The regulator further proposed that any charge or cost associated with availing intraday borrowings should continue to be borne by the AMC and not charged to the scheme. The proposal follows the earlier introduction of intraday borrowing carve-out in SEBI (Mutual Funds) Regulations, 2026, effective April 1, with operational guidelines issued through a circular dated March 13.
