- SEBI proposes easing intraday borrowing rules for mutual funds to manage liquidity better
- Mutual funds may borrow intraday for redemptions and operational needs like trade settlements
- Current borrowing limits apply only to temporary liquidity for redemptions within same-day cash flows
The Securities and Exchange Board of India has proposed easing short-term borrowing norms for mutual funds, allowing fund houses to use intraday loans more flexibly to manage temporary liquidity mismatches and settlement obligations.
Under the proposal, mutual funds may be permitted to borrow funds during the trading day not only for investor redemptions but also for operational requirements such as trade settlements, foreign exchange transactions, derivative positions and other payment obligations.
The move is aimed at helping mutual funds handle short-term cash flow mismatches more efficiently without disrupting investment operations or portfolio management activities.
At present, mutual fund schemes are allowed to borrow only to meet temporary liquidity needs for repurchase or redemption requests and within prescribed limits. SEBI's latest proposal seeks to broaden the scope by permitting borrowing even beyond guaranteed same-day incoming cash flows.
According to the regulator, mutual funds currently face situations where payment obligations may arise before anticipated inflows are fully realised during the trading day. This can create operational stress despite the fund expecting adequate cash later in the day.
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The proposed framework would allow mutual funds to borrow intraday funds exceeding expected inflows if required for settlement purposes or operational continuity. However, such borrowings would have to be repaid within the same trading day.
SEBI clarified that the existing rules governing overnight borrowing limits would continue to remain in force. The regulator also proposed that any borrowing-related costs should be borne by the asset management company and not passed on to investors in the scheme.
The market regulator said the proposal is intended to provide operational flexibility while ensuring that borrowing remains temporary and tightly controlled.
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