The Securities and Exchange Board of India (SEBI) on Friday has introduced a regulatory framework governing intraday borrowings by mutual funds, formalising a practice that has been informally followed in the industry while introducing safeguards to protect investors.
Under the new rules, mutual funds will be permitted to undertake intraday borrowing only to meet investor redemption payouts. The regulator in a circular on Friday said the move aims to ensure smoother fund operations while preventing any misuse of short-term borrowing facilities.
The provisions will come into effect from April 1 under the SEBI Mutual Fund Regulations, 2026.
According to the new framework, intraday borrowing will be allowed only against guaranteed receivables that are due to be realised on the same day. SEBI has also linked the limit for intraday borrowing to the value of receivables expected to be received on the same day, placing a clear cap on the amount that asset management companies (AMCs) can borrow.
ALSO READ: 'Core To Capital Formation': SEBI Signals Next Phase Of AIF Regulation As Industry Scales
SEBI has mandated that asset management companies must put in place a formal intraday borrowing policy approved by their boards. The policy will outline the operational framework, controls and limits under which such borrowing can be undertaken.
Importantly, SEBI has clarified that the cost of intraday borrowing must be borne by the asset management company and not passed on to investors. This provision ensures that mutual fund investors remain protected from additional expenses arising from operational liquidity management.
In cases where expected receivables are delayed, investors will continue to be shielded from the borrowing costs.
The new framework also allows exchange-traded funds (ETFs) and index funds to use intraday borrowing for participation in the closing auction of stock exchanges.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
