The Securities and Exchange Board of India (SEBI) has proposed to expand the application of intraday borrowing facilities for mutual funds, enabling asset management companies (AMCs) to use these funds beyond merely addressing redemption payouts and unitholder payments.
This initiative aims to allow AMCs to utilize intraday borrowings for various purposes, including trade settlements, foreign exchange obligations, mark-to-market (MTM) derivative positions, and general cash management. Additionally, these borrowings are set to exceed both guaranteed and non-guaranteed receivables throughout the trading day, albeit with certain safeguards in place.
Currently, mutual funds rely on intraday borrowing primarily to mitigate timing mismatches between payouts and receivables during trading hours, functioning as a cash flow management tool. This proposed change seeks to alleviate operational challenges faced by AMCs due to discrepancies in timing between outflows and receivables specific to their schemes.
“Since the pay-in has to be completed by certain cut-off timings, any receivables arriving late in the evening cannot be effectively utilized, potentially impacting the scheme’s returns,” the regulator pointed out.
Trade Settlements
The Association of Mutual Funds in India (AMFI) had previously submitted requests in March, arguing that such borrowing facilities are also essential for fulfilling trade settlements—such as pay-in obligations—foreign exchange settlements, derivative commitments, and repayment of current borrowings.
In practice, pay-ins for equity and bond trades often come due in the morning, while corresponding sale proceeds or TREPS receivables may only be available later in the evening. Imposing restrictions on borrowing could limit “fund management flexibility and impact the returns of the scheme,” according to SEBI.
The proposal also suggests that intraday borrowing amounts not be confined to guaranteed receivables from entities like the Government of India, the Reserve Bank of India, or clearing corporations.
Borrowing Limits
Furthermore, SEBI has proposed that intraday borrowings that convert to overnight loans must remain within existing regulatory thresholds. The current regulations permit borrowing up to 20 percent of a fund’s net assets for temporary liquidity needs, with a maximum borrowing duration of six months.
AMCs will still be accountable for ensuring that all intraday borrowings are settled by the close of the trading day. Any costs linked to utilizing these facilities will be borne by the AMCs rather than being charged to the respective schemes.
The public is invited to provide comments on these proposals until June 3.
Published on May 13, 2026.
