SEBI Proposes Wider Intraday Borrowing Flexibility for Mutual Funds

Consultation Paper; Dated: 13.05.2026

The Securities and Exchange Board of India (SEBI) has issued a consultation paper proposing greater operational flexibility for Mutual Funds in availing intraday borrowing facilities for efficient cash flow management. The proposals aim to provide fund houses with improved liquidity management mechanisms while maintaining regulatory safeguards under the SEBI (Mutual Funds) Regulations, 2026.

1. Existing Framework for Intraday Borrowing

At present, Mutual Funds are permitted to avail intraday borrowing facilities primarily for meeting temporary liquidity mismatches arising from redemption payouts. Such borrowings are generally linked to receivables expected during the day and are subject to specified regulatory conditions.

2. Proposal to Expand Permitted End-Use of Borrowings

SEBI has proposed allowing Mutual Funds to avail intraday borrowings for purposes beyond redemption-related requirements. The proposed flexibility is intended to help Mutual Funds manage operational cash flow mismatches more efficiently during market hours.

This may enable fund houses to address temporary funding gaps arising from various transactional and settlement obligations without being restricted solely to redemption payouts.

3. Borrowings Against Non-Guaranteed Receivables

The consultation paper also proposes permitting Mutual Funds to avail intraday borrowing facilities against receivables that are not guaranteed. Under the current framework, borrowings are generally linked to assured receivables.

The proposed change is aimed at broadening the liquidity management options available to Mutual Funds and aligning operational practices with evolving market requirements.

4. Proposal to Permit Borrowings Exceeding Receivables

SEBI has further proposed allowing Mutual Funds to avail intraday borrowings exceeding the amount of receivables available during the day, subject to compliance with the prescribed overnight borrowing limits under the SEBI (Mutual Funds) Regulations, 2026.

This proposal seeks to provide additional liquidity flexibility while ensuring that overall borrowing exposure remains within the regulatory safeguards prescribed for Mutual Funds.

5. Compliance with Regulatory Limits

The consultation paper emphasises that all intraday borrowing arrangements must continue to comply with the borrowing limits and prudential safeguards prescribed under the SEBI (Mutual Funds) Regulations, 2026. Mutual Funds will also be required to maintain appropriate risk management and monitoring mechanisms while availing such facilities.

6. Objective of the Proposals

The proposed amendments are intended to strengthen liquidity management practices for Mutual Funds, improve operational efficiency and provide greater flexibility in managing short-term cash flow mismatches. SEBI aims to balance enhanced operational freedom with adequate regulatory oversight and investor protection safeguards.

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