Sebi’s New Proposal Could Help Mutual Funds Manage Cash Flows Better

Market regulator Sebi has proposed relaxing the rules for intraday borrowing by mutual funds. This would allow asset management companies (AMCs) to use short-term borrowing not just for paying investors who redeem their units, but also for other day-to-day cash management needs.

Sebi released the proposal through a consultation paper on May 13 and has invited public comments till June 3, 2026.

What Sebi Has Proposed

Sebi has proposed allowing mutual fund companies to use intraday borrowing for more purposes than just paying investors who redeem their units.

Under the proposal, AMCs would be able to use short-term borrowing for day-to-day operational needs such as trade settlements, forex transactions, derivative-related payments and repayment of existing borrowings.

In the consultation paper, Sebi said, “AMCs may be allowed to avail intraday borrowings also for the purposes other than redemption/ unitholder payouts.”

The regulator has also proposed allowing mutual funds to borrow amounts higher than their expected inflows or receivables during the day, whether those receivables are guaranteed or not. However, AMCs will be required to fully repay the borrowings by the end of the same day.

Sebi said that if mutual funds fail to repay intraday borrowings on the same day and carry them overnight, they will have to follow the existing borrowing rules for mutual funds.

Under current regulations, mutual funds cannot borrow more than 20 percent of a scheme’s net assets, and they cannot keep such borrowings for more than six months.

The regulator also said AMCs will have to bear any cost or charges related to intraday borrowing, not investors.