The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing a significant expansion in the scope of intraday borrowing facilities available to mutual funds, a move aimed at improving liquidity and easing operational cash flow challenges for asset management companies (AMCs).
The regulator has suggested allowing mutual funds to use intraday borrowing not just for redemption payouts, but also for settlement-related payments, foreign exchange obligations, and mark-to-market (MTM) requirements. The proposal is part of SEBI’s broader effort to streamline cash management processes within the mutual fund industry.
Expanded use of intraday borrowing
Under the proposed framework, mutual funds will be permitted to borrow funds on an intraday basis for multiple operational needs, including trade settlements, FX payments, and derivative-related MTM obligations. Until now, such borrowing was largely restricted and primarily used for managing redemption pressures.
SEBI noted that the expanded access could help AMCs manage short-term liquidity mismatches more efficiently, particularly during volatile market conditions or large settlement cycles.
Strict same-day repayment requirement
Despite the expanded scope, SEBI has retained strict risk controls. Intraday borrowing will have to be repaid on the same day, ensuring that it does not evolve into a form of short-term leverage. Existing rules governing overnight borrowing will continue to apply separately.
The regulator also clarified that any costs associated with intraday borrowing will be borne by the asset management companies and not passed on to investors, thereby preventing any additional burden on mutual fund unitholders.
Industry feedback invited till June 3
SEBI has invited public comments and stakeholder feedback on the proposal until June 3. The consultation process is aimed at finalising a balanced framework that supports operational flexibility while maintaining investor protection and systemic stability.
The proposal comes after several requests from AMCs seeking greater flexibility in managing intraday liquidity requirements amid growing transaction volumes and increasingly complex settlement structures in capital markets.