SEBI Allows Mutual Funds to Use Intraday Borrowing from April 1, 2026

The Securities and Exchange Board of India (SEBI) has issued a new framework allowing mutual funds to undertake intraday borrowing to manage temporary cash mismatches during redemption processing. The circular, released on March 13, 2026, formalises a longstanding industry practice, particularly in liquid and overnight schemes.

These schemes often pay redemption proceeds early in the morning on T+1, while maturity inflows from instruments such as TREPS and reverse repo typically arrive later the same day. SEBI’s move aims to bring uniformity, safeguard investor interests and ensure smoother cash-flow operations for fund houses.

What Does the New Framework Permit?

SEBI’s circular allows mutual funds to borrow funds intraday strictly for specific purposes from April 1, 2026. These include redemption payments, repurchase of units and distribution payouts. The regulator emphasises that such borrowing is meant only to bridge same‑day timing mismatches, not to finance investment activities.

The borrowing amount must not exceed the day’s guaranteed receivables from entities such as the Government of India, the Reserve Bank of India and the Clearing Corporation of India Limited. This cap ensures borrowing remains fully backed by confirmed inflows on the same day.

Eligible Receivables And Instrument Types

SEBI has outlined a detailed list of instruments whose maturity or sale proceeds qualify as eligible receivables for intraday borrowing. These include TREPS, reverse repo transactions, government securities, treasury bills and state development loans.

Interest payments and same‑day settlement proceeds from these instruments are also considered eligible. The focus on secured and sovereign‑backed instruments ensures the borrowing remains low risk and fully covered.

Governance, Policies and Cost Treatment

SEBI has mandated that asset management companies (AMCs) establish board‑approved policies governing the use of intraday borrowing. These policies must be disclosed publicly on AMC websites for transparency.

This governance requirement ensures consistent application of the framework across fund houses. SEBI also clarified that all costs associated with such borrowing must be borne entirely by the AMC.

How The Framework Supports Industry Practices

The circular effectively codifies an operational practice already used informally within liquid and overnight schemes. Typically, redemption proceeds are paid out on T+1 mornings, while corresponding inflows from maturing securities come in much later.

Intraday borrowing helps fund houses honour redemptions punctually without forcing early liquidation of securities. By formalising the practice, SEBI ensures uniform adoption, better risk controls and transparency across the industry.

Read More: SEBI Updates Mutual Fund Categorisation Framework.

Conclusion

SEBI’s decision to allow intraday borrowing provides mutual funds with an operational tool to handle temporary cash mismatches more efficiently. The framework, effective April 1, 2026, sets strict conditions around purpose, limits, eligible instruments and governance obligations.

With AMCs required to bear all associated costs and risks, investor protection remains central to the regulation. The measure brings structure and transparency to a practice already prevalent in liquid and overnight schemes, reinforcing stability in redemption management.

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