The Securities and Exchange Board of India (SEBI) on May 13, 2026, issued the Consultation Paper on utilization of intraday borrowing lines by Mutual Funds.
The consultation paper seeks public comments on a proposal to formally recognize intraday borrowing by mutual funds as a cash management tool and to introduce uniform safeguards and practices. This follows earlier regulatory changes permitting such borrowings specifically for meeting redemption payouts based on guaranteed receivables, though implementation has been deferred to July 15, 2026 due to operational concerns raised by the industry.
Mutual funds, as represented by AMFI, currently use intraday borrowing to address timing mismatches between inflows and outflows, such as early-day redemption payments, trade settlement obligations, forex transactions, and derivative exposures. These borrowings are typically availed and repaid within the same day, enabling smoother fund operations and preventing disruptions in investment decisions and returns.
The paper highlights that restricting intraday borrowings only to guaranteed receivables may limit operational flexibility. Therefore, SEBI proposes to allow such borrowings for broader purposes beyond redemptions, and even permit borrowings exceeding receivables, subject to the condition that they are repaid within the same day or converted into overnight borrowings within prescribed regulatory limits.
Public consultation has been invited on key issues, including expansion of permitted purposes, removal of restriction to guaranteed receivables, and allowing borrowing amounts to exceed receivables with safeguards. Additionally, it is proposed that any costs associated with intraday borrowing be borne by the Asset Management Companies (AMCs). Comments from stakeholders are invited until June 3, 2026.
