The Securities and Exchange Board of India (Sebi) has broadened the circumstances under which mutual funds can access intraday borrowings, giving asset management companies greater flexibility to manage short-term liquidity pressures during market hours.
The revised framework, approved at the regulator’s board meeting on 19 June, allows mutual funds to borrow during the day to meet a wider range of settlement and operational obligations. These include foreign exchange settlements, derivative-related mark-to-market payments, securities transaction settlements and the repayment of existing borrowings.
The move marks a significant expansion from the earlier regime, under which intraday borrowing was largely restricted to meeting redemption requests, interest payments and Income Distribution-cum-Capital Withdrawal (IDCW) obligations.
Sebi said the changes are designed to address temporary timing mismatches that frequently arise during settlement cycles, where payment obligations become due before corresponding funds are received.
In a further relaxation, the regulator has permitted mutual funds to borrow against anticipated inflows that may not be formally guaranteed. These include proceeds from secondary market transactions, maturity payments and other receivables expected to be credited later in the day.
Despite the broader flexibility, Sebi stressed that intraday borrowing cannot be used to create leverage within mutual fund schemes. All borrowings must be repaid before the end of the trading session.
Any borrowing that remains outstanding beyond the same day will be classified as regular borrowing and will fall under the existing regulatory limits applicable to mutual funds.
The regulator also clarified that the cost of such borrowings, along with any losses arising from delays in the receipt of expected funds, will continue to be borne by the asset management company rather than investors.
According to Sebi, the revised framework is expected to improve operational efficiency and enable mutual funds to meet settlement obligations more seamlessly without affecting portfolio management activities.
The decision was among several measures cleared by the board under the chairmanship of Sebi Chairman Tuhin Kanta Pandey, including the approval of a revised framework for open-market share buybacks through stock exchanges.