SEBI Considers Relaxing Borrowing Norms for Mutual Funds Cash Management

The Securities and Exchange Board of India (SEBI) has proposed changes to the intraday borrowing framework for mutual funds, seeking to widen the use of short-term borrowing for operational liquidity requirements.  

The proposal follows feedback from the mutual fund industry on practical challenges under the current structure. 

The market regulator has also postponed the implementation of the existing intraday borrowing framework to July 15, 2026. 

Use Beyond Redemption Payments 

Under the present rules, mutual funds can use intraday borrowing mainly for redemption payouts supported by assured inflows expected during the same day. 

SEBI has now proposed allowing asset management companies (AMCs) to use such borrowing for additional purposes, including trade settlement obligations, foreign exchange transactions, derivative-related margin requirements and repayment of existing borrowings. 

The regulator said intraday borrowing may be permitted for “purposes other than redemption or unitholder payouts”, expanding its role as a broader liquidity management tool. 

Industry Feedback on Cash Flow Mismatches 

Mutual funds often face temporary timing gaps between outgoing payments and incoming receipts during market hours.  

Payments related to securities purchases, redemption requests and derivative positions may arise earlier in the day, while proceeds from asset sales or maturing securities are received later. 

To manage these temporary mismatches, fund houses use short-duration borrowing from banks during the trading session and repay the amount once receivables are credited. 

Industry body Association of Mutual Funds in India (AMFI) informed SEBI that intraday borrowing is already being used across multiple operational activities and is not restricted only to redemption payouts. 

Proposed Changes to Existing Conditions 

SEBI is also considering removing the requirement that intraday borrowing should be backed by assured inflows such as receivables from government entities or clearing corporations. 

The consultation paper further stated that mutual funds may be allowed to borrow amounts exceeding expected inflows during the day, provided the borrowing is fully repaid before the close of business. 

Any borrowing not repaid on the same day would continue to be treated as regular borrowing under existing mutual fund regulations. 

Existing Limits to Continue 

Current rules permit mutual fund schemes to borrow up to 20% of net assets for a maximum period of six months. SEBI has clarified that these limits will remain applicable for borrowings extending beyond the same day. 

The regulator has invited public comments on the proposal until June 3, 2026. 

Read More: Mirae Asset Mutual Fund Introduces Platinum Hybrid Long-Short Fund Under SIF! 

Conclusion  

SEBI’s proposal seeks to give mutual funds greater flexibility in handling short-term liquidity needs during trading hours while retaining existing safeguards on overall borrowing limits. Public comments on the consultation paper can be submitted till June 3, 2026. 

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