- SEBI approved broader intraday borrowing use for mutual funds beyond redemption payouts
- Mutual funds can now borrow for settlement, forex, derivatives, and repayment needs
- Intraday borrowing limits extended to expected but not guaranteed inflows
Market regulator Securities and Exchange Board of India (SEBI) has approved changes to the intraday borrowing framework for mutual funds, allowing asset management companies (AMCs) to use short-term bank borrowings for a wider range of operational requirements beyond investor redemptions.
The move follows representations from the mutual fund industry, which had flagged operational challenges under the framework notified earlier this year. Industry participants argued that the existing restrictions could constrain efficient fund management and affect investment operations.
Under the current rules, mutual funds are permitted to avail intraday borrowings primarily for meeting redemption payouts, interest payments and Income Distribution-cum-Capital Withdrawal (IDCW) obligations. Such borrowings are also capped by guaranteed receivables expected to be realised on the same day.
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SEBI has now broadened the permissible use of intraday borrowings to include cash management needs such as settlement of securities transactions, foreign exchange settlements, mark-to-market obligations on derivative positions and repayment of existing borrowings.
The regulator said restricting intraday borrowing solely to redemption-related obligations could limit operational flexibility and potentially impact scheme performance.
In another key relaxation, SEBI has allowed fund houses to avail intraday borrowings beyond guaranteed receivables by taking into account expected inflows that are not formally guaranteed. These may include proceeds from secondary market sales, maturity payments and other settlement-related cash flows.
However, AMCs must ensure that all intraday borrowings are 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 borrowing limits prescribed under mutual fund regulations.
According to SEBI, 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.
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Industry body AMFI had informed the regulator that mutual funds often face situations where obligations related to securities settlements, foreign exchange transactions or derivative positions become due earlier in the day, while corresponding receivables are credited only later.
"The cost of intraday borrowing, as well as any loss arising from delays in receiving expected funds, will continue to be borne by the AMC rather than by mutual fund investors," SEBI said, adding that the framework ensures unitholders remain insulated from such operational expenses.
SEBI said the changes are expected to strengthen liquidity management, reduce the need for forced asset sales during temporary cash mismatches and facilitate smoother execution of investment and settlement activities
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