- SEBI widened intraday borrowing scope for mutual funds to include broader liquidity uses
- Mutual funds can use borrowings for redemptions, trade settlements, forex, and margin payments
- Intraday borrowings must still be repaid on the same day as per SEBI's guidelines
Mutual funds have received regulatory relief after the Securities and Exchange Board of India (SEBI) widened the scope of intraday borrowing, allowing asset management companies (AMCs) to use such borrowings for a broader range of liquidity management purposes.
Under a circular issued on Friday, SEBI said mutual funds will now be permitted to use intraday borrowing not only for meeting investor redemption payouts but also for trade settlement, cash flow management, foreign exchange settlements and derivative margin payments.
The revised framework removes the earlier restriction that linked intraday borrowings to guaranteed same-day receivables. Instead, fund houses will have greater operational flexibility in managing temporary liquidity mismatches during the trading day.
However, SEBI has retained the requirement that all intraday borrowings must be repaid on the same day.
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The regulator has also clarified that the cost of such borrowings will be borne by the asset management company and not by the mutual fund scheme or its investors. In addition, any losses arising due to delayed receivables will have to be absorbed by the AMC.
The changes follow representations from the mutual fund industry, which had sought greater flexibility in the use of intraday borrowing to address operational constraints and improve liquidity management.
The revised framework comes after SEBI's board approved the proposal in June and will come into effect from July 15.
The broader borrowing framework is expected to help fund houses manage settlement obligations and short-term liquidity requirements more efficiently without affecting investor interests, while ensuring that temporary borrowings remain strictly intraday in nature.
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