The Securities and Exchange Board of India (SEBI) has relaxed the framework governing intraday borrowings by mutual funds, permitting asset management companies (AMCs) to use short-term bank borrowings for a wider range of operational requirements beyond investor redemptions. According to reports from CNBC TV18, the decision was approved at SEBI's board meeting on Friday, June 19, chaired by SEBI Chairman Tuhin Kanta Pandey. The move comes after the mutual fund industry raised concerns over the framework notified earlier this year, arguing that the existing restrictions could hamper efficient fund management. As reported by Business Standard, the proposal was finalised after public consultation in May 2026 and discussions with the Mutual Fund Advisory Committee (MFAC), industry associations and other stakeholders. SEBI observed that limiting intraday borrowing only to redemption-related payouts could reduce operational flexibility and potentially affect scheme returns, prompting the regulator to expand the permissible uses of such borrowings.
Previously, mutual funds were allowed to access intraday borrowing largely for redemption payouts, interest payments and Income Distribution-cum-Capital Withdrawal (IDCW) obligations, with the borrowing amount linked to guaranteed receivables expected on the same day. As reported by CNBC TV18, SEBI has now allowed mutual funds to avail intraday borrowings against expected inflows that are not formally guaranteed, including proceeds from secondary market sales, maturity proceeds and other settlement-related receivables. According to Business Standard, under the revised framework, mutual funds will be permitted to use intraday borrowings to bridge funding gaps arising from differences in settlement timings, including pay-in and pay-out mismatches across asset classes, foreign exchange settlements and mark-to-market (MTM) payments on derivative positions. The decision addresses industry concerns about settlement-related cash flow mismatches faced by fund houses, as flagged by the Association of Mutual Funds in India (AMFI), which had represented that fund houses frequently face situations where pay-ins for securities, forex settlements or derivative obligations are due early in the day, while corresponding receivables are credited only later.
SEBI has clarified that intraday borrowings cannot be used as a source of leverage. According to the regulator, all such borrowings must be repaid before the close of the trading day. Any amount remaining outstanding beyond the same day will be treated as regular borrowing and will be subject to the existing borrowing limits prescribed under mutual fund regulations. As reported by Business Standard, intraday borrowings will be capped at the value of receivables expected during the day, with borrowings above this limit permitted only for meeting unitholder payout obligations as specified under the regulations. Any borrowing that rolls over into an overnight position must remain within the existing regulatory limits and be used only for purposes permitted under the regulations. The revised framework is aimed at addressing temporary timing mismatches between payment obligations and incoming cash flows that arise during the course of daily settlement cycles. The cost of intraday borrowing, as well as any losses arising from delays in receiving expected funds, will continue to be borne by the AMC and not by mutual fund investors, ensuring unitholders remain insulated from such operational expenses.
The decision forms part of a broader set of market reforms approved by SEBI's board on Friday, June 19. According to CNBC TV18, the regulator also cleared the reintroduction of open-market share buybacks through stock exchanges under a revised framework with faster execution timelines. Under the revised framework, mutual funds can use intraday borrowings to bridge timing gaps between pay-in and pay-out obligations within an asset class, meet foreign exchange settlement requirements, fulfil mark-to-market obligations on derivative positions, settle securities transactions and repay existing borrowings. As reported by Business Standard, the facility will be in addition to the existing provision that allows mutual fund schemes to borrow up to 20% of their net assets to meet unitholder payouts such as redemptions. SEBI said the changes are expected to strengthen liquidity management, reduce the need for distress asset sales during temporary cash mismatches and facilitate smoother execution of investment and settlement activities. The regulator's decision is expected to provide mutual funds with greater operational flexibility while safeguarding investor interests, as the burden of any borrowing costs or losses arising from delays in cash inflows will continue to rest with the fund houses.
