SEBI Expands Mutual Fund Intraday Borrowing Rules From 1 September; AMCs To Bear All Costs

Mutual funds will have more room to manage short-term cash needs from 1 September 2026.

The Securities and Exchange Board of India (SEBI) issued a circular this week expanding the list of purposes for which mutual fund schemes can use intraday borrowings as part of steps to operationalise amendments to the SEBI (Mutual Funds) Regulations, 2026.

The intent is to give fund houses a smoother way to handle timing gaps between money coming in and going out, without any of the cost falling on investors.

Wider List Of Permitted Uses

Previously, the scope of intraday borrowings was narrower. Under the revised rules, mutual funds can now borrow during the trading day to pay out unitholders through redemptions, income distribution-cum-capital withdrawal pay-outs and interest payments.

The facility can also be used to make pay-ins for scheme investments, cover mark-to-market obligations, settle foreign exchange transactions and repay existing borrowings.

Borrowing Limits Tied To Expected Receivables

How much a scheme can borrow intraday depends on what money it expects to receive the same day. Two categories of receivables are recognised. The first covers guaranteed inflows, such as funds coming in from the RBI, clearing corporations and subscription proceeds already sitting in the scheme's bank account. The second covers non-guaranteed receivables due by end of day, including maturity proceeds and settlement inflows from instruments such as non-convertible debentures, commercial papers, certificates of deposit and over-the-counter swaps.

Over and above these receivables, asset management companies (AMCs) may draw additional intraday funds, but only for redemptions and other investor pay-outs specifically permitted under the 2026 regulations.

Costs Stay With The AMC

SEBI has drawn a clear line on who bears the cost. All charges on intraday borrowings, and any losses from unexpected delays in receiving expected funds, must be absorbed by the AMCs. None of this can be charged to investors. Every intraday borrowing must be fully repaid before the trading day closes. If a borrowing runs past that point, it converts to an overnight borrowing and must then comply with the separate rules governing such positions.

Governance And Disclosure Requirements

AMC boards and mutual fund trustees must put in place a written policy covering how intraday borrowings will be approved and monitored. This policy must be made available on the AMC's website. Fund houses must also keep scheme-level records documenting what caused the liquidity gap and how repayment is expected to be arranged.

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