Securities and exchange board of India (Sebi) proposed on Wednesday to allow mutual fund houses to use intraday borrowing for purposes other than redemption or unitholder payouts like for liquidity needs for trade settlements, derivative obligations, repayment of existing borrowings etc.
Managing the Gap
In addition, the regulator has also proposed to allow the quantum of these intraday borrowings to exceed guaranteed and non-guaranteed receivables of fund houses as long as they remain within the regulatory limits of below 20% of the assets of the scheme on the previous day. The regulator specified that in the event of the intraday borrowings exceeding the receivables, the AMCs will be responsible to repay the intraday borrowings by the end of the day and ensuring that any intraday borrowing converted to overnight borrowing remains within regulatory limits and for the allowed purposes.
Beyond Redemptions
Earlier this year, the regulator had allowed AMCs to use intraday borrowings to bridge the timing gap between redemption payouts and receipt of guaranteed receivables due on the same day. However, the regulator deferred the enforcement of this regulation from April 1 till July 15 after receiving feedback about operational challenges faced by the fund houses to comply.
Further, the regulator received representations from AMCs and Amfi that lack of intraday borrowings from banks for purposes other than the ones allowed by the regulator could lead to an impact on flexibility of the fund manager, the ability to make buy and sell trades during the day and impact on scheme returns, leading to the present proposal.