Starting September 1, 2026, SEBI will let mutual funds use intraday borrowings to manage temporary cash flow gaps. This change aims to ensure smooth redemptions and trade settlements. Importantly, asset management companies must bear all borrowing costs, ensuring the impact is not passed on to individual investors.
The Securities and Exchange Board of India has introduced a fresh framework for mutual funds regarding the use of intraday credit. Beginning September 1, 2026, fund houses will have more flexibility to use short-term borrowing to handle liquidity mismatches. These situations often occur because the time taken to settle market trades may not perfectly match the timing of cash inflows from investments or investor redemptions.
Operational Flexibility for Fund Houses
Under the new guidelines, mutual fund schemes can utilize intraday borrowing for several specific operational needs. This includes processing redemption requests for unitholders, making income distributions, and completing pay-ins for new investments. Additionally, funds can use this facility for foreign exchange settlements and clearing mark-to-market obligations. By allowing this, the regulator intends to reduce the chances of operational delays during periods of high market activity or sudden changes in investor demand.
Borrowing Limits and Repayment Rules
While the scope of borrowing has increased, the regulator has kept strict controls in place. Borrowings can be secured against guaranteed receivables, such as those expected from clearing corporations or the Reserve Bank of India, as well as anticipated subscription proceeds. Funds are also permitted to borrow against non-guaranteed receivables, like maturing debt instruments, provided they are expected to be received within the same day.
A core requirement of this policy is that all intraday loans must be cleared before the end of the trading day. If a borrowing is not repaid by the market close, it will immediately fall under the existing, stricter regulations for overnight borrowings. This mechanism is designed to prevent long-term debt accumulation within schemes.
Governance and Cost Protection for Investors
To ensure transparency, the boards of asset management companies and mutual fund trustees must create and approve a formal policy for these borrowings. This policy must explain how these loans are approved and monitored, and it must be published on the company’s website. Furthermore, each scheme must keep detailed internal records explaining why a liquidity mismatch happened and how the fund planned to repay the loan.
Investors are shielded from the costs of this facility by a specific SEBI mandate. All expenses related to intraday borrowing, as well as any losses incurred from delays in expected fund inflows, must be covered by the asset management company itself. These costs cannot be charged to the mutual fund schemes or the unit holders. This approach is intended to ensure that fund managers remain disciplined while using this new flexibility to support daily operations.