New Delhi: Securities and Exchange Board of India (Sebi) on Friday issued guidelines allowing mutual funds to undertake intraday borrowing from financial institutions such as banks to manage temporary cash-flow mismatches.
Under the framework, the board of an asset management company (AMC) and the board of trustees must approve a policy governing the use of intraday borrowing facilities. The approved policy must also be disclosed on the AMC’s website.
The regulator said such borrowings can be used only for specific purposes, including repurchase or redemption of units and payment of interest or Income Distribution-cum-Capital Withdrawal (IDCW) to unitholders. The borrowing amount cannot exceed the “guaranteed receivables” expected on the same day.
Eligible receivables include maturity proceeds from TREPS (Triparty Repo in Government Securities), reverse repo transactions, and government securities such as G-Secs, Treasury Bills, State Development Loans (SDLs) and STRIPS, as well as interest payments and sale proceeds from these securities.
The guidelines will come into effect from April 1, 2026.
Sebi said mutual funds, particularly liquid and overnight schemes, often face a timing mismatch as redemption payouts are processed in the morning of T+1 day while maturity proceeds from TREPS and reverse repo transactions are received later the same day.
Earlier, Sebi had notified the Sebi (Mutual Funds) Regulations, 2026, which allow mutual funds to borrow up to 20 per cent of a scheme’s net assets for certain purposes for a maximum of six months. However, this limit will not apply to intraday borrowings subject to Sebi’s conditions.
The regulator also clarified that any borrowing costs due to delays in receiving expected funds must be borne by the AMC and not the
scheme.