Summary of this article
Sebi allows mutual funds to use intraday borrowing from September 1, 2026
Funds can borrow for payouts, settlements and other specified purposes only
AMCs must bear borrowing costs and maintain detailed records
Mutual funds will be allowed to avail of intra-day borrowing to manage temporary liquidity mismatches arising from differences in market settlement timings under a new framework issued by the Securities and Exchange Board of India (Sebi). The facility will be available for specified purposes, subject to conditions laid down by the market regulator, and will come into effect from September 1, 2026.
The move follows amendments to the Sebi (Mutual Funds) Regulations, 2026, notified on July 3, 2026. Sebi has said the regulatory change has been introduced “to address liquidity mismatches due to difference in market settlement timings” by permitting intra-day borrowings for mutual funds under a defined framework. The new circular replaces the earlier guidelines on mutual fund borrowings that Sebi had issued in March 2026.
The circular will come into effect from September 1, 2026.
Where Mutual Funds Can Use Intra-day Borrowing
Sebi has specified four situations in which mutual funds can avail of intra-day borrowings.
These include making payments to unitholders, such as redemptions, income distribution-cum-capital withdrawal (IDCW) payouts and interest payments. The facility can also be used for pay-ins relating to investments made by schemes, mark-to-market (MTM) obligations, foreign exchange settlements, and repayment of existing borrowings.
Limits On Borrowing
Sebi has capped the amount that can be borrowed during the day. The borrowing can be backed by guaranteed receivables such as inflows from the Reserve Bank of India (RBI), clearing corporations, and subscription money received in scheme bank accounts. It can also be supported by non-guaranteed receivables expected to be credited before the end of the day, including maturity proceeds and secondary market settlements from non-convertible debentures (NCDs), commercial papers (CPs), certificates of deposit (CDs) and over-the-counter (OTC) swaps.
In addition, Sebi has permitted asset management companies (AMCs) to borrow beyond these receivables solely for meeting redemption requests and other payouts to unitholders permitted under Regulation 42(1) of the Sebi (Mutual Funds) Regulations, 2026.
Same-Day Repayment Mandatory
The regulator has made AMCs responsible for ensuring that all intra-day borrowings are repaid by the end of the day. If any borrowing extends beyond the trading day and becomes an overnight borrowing, Sebi said it must remain within the regulatory borrowing limits and be used only for purposes allowed under Regulation 42(1) of the Sebi (Mutual Funds) Regulations, 2026.
Other Key Changes
Sebi has directed the boards of AMCs and trustees of mutual funds to approve a policy on how intra-day borrowing facilities will be used.
AMCs will be required to publish the policy on their websites and clearly explain how they will approve and monitor intra-day borrowings.
Further, AMCs will be required to maintain scheme-wise records explaining the liquidity mismatch behind each borrowing and identifying the expected source of repayment. Sebi has also directed them to comply with clauses 6 and 7 of the Fourth Schedule of the Sebi (Mutual Funds) Regulations, 2026, as well as paragraph 17.7 of the Master Circular.
AMCs will have to bear the cost of intra-day borrowings. They will also have to absorb any losses or additional costs caused by unexpected events or delays in receiving the expected funds, Sebi said.
What It Means For Investors
Mutual funds can temporarily borrow during the day to bridge short-term cash flow gaps caused by differences in settlement timings. For instance, if a scheme has to pay investors for redemptions before it receives money from securities settlements later the same day, it can use intrad-ay borrowing to meet those payments. The borrowing cost and any related losses will be borne by the AMC, and not the mutual fund scheme.
