Market regulator Securities and Exchange Board of India has allowed mutual funds to avail intraday borrowing facilities to address temporary liquidity mismatches arising from differences in market settlement timings, according to a circular issued on Friday. 

 

The move follows amendments to the SEBI (Mutual Funds) Regulations, 2026, notified earlier this month, permitting mutual funds to borrow funds during trading hours for specified operational purposes. 

 

Under the new framework, mutual funds will be allowed to use intraday borrowings for unitholder payouts including redemptions, dividend distributions and interest payments, as well as for settlement of investments, mark-to-market obligations, foreign exchange settlements and repayment of existing borrowings. 

 

SEBI said, the amount of such borrowings would primarily be restricted to expected inflows including subscription proceeds, payments from clearing corporations, maturity proceeds and settlement receivables due during the same day. Additional borrowing would be permitted only for meeting redemption and other investor payout obligations. 

 

Asset Management Companies (AMCs) will be required to ensure that all intraday borrowings are repaid before the end of the trading day. Any borrowing that spills over into overnight funding must remain within existing regulatory limits applicable to mutual funds. 

 

The regulator has also mandated that the boards of AMCs and trustees approve a formal policy governing the use of intraday borrowing facilities, with details of the policy to be disclosed on the AMC’s website. 

 

Further, SEBI clarified that the cost of intraday borrowing and any losses arising from delays in receiving expected funds will have to be borne by the AMC and not passed on to investors. 

 

The circular will come into effect from September 1, this year.