Sebi Introduces Intraday Borrowing Guidelines for Mutual Funds

The Securities and Exchange Board of India (Sebi) has rolled out new guidelines for mutual funds to engage in intraday borrowing with financial institutions such as banks. Aimed at easing liquidity mismatches, this move mandates policy approval from asset management boards, with full compliance expected by April 2026.

In a bid to streamline liquidity management for mutual funds, the Securities and Exchange Board of India (Sebi) announced new guidelines for intraday borrowing. These guidelines allow borrowing from financial institutions including banks, primarily to manage immediate financial obligations such as unit redemptions and interest payouts.

The updated framework necessitates prior approval of a policy by mutual funds' asset management companies' boards and trustees before engaging in such borrowing. Additionally, the approved policy must be made available on their websites to ensure transparency. It stresses that borrowing must align with specific purposes and not exceed the 'guaranteed receivables' expected the same day.

Sebi notes that the structured borrowings will only be fully implemented from April 1, 2026. This move follows Sebi's earlier notification of the Mutual Funds Regulations, 2026, and introduces conditions that facilitate better financial alignment for mutual funds, especially amidst timing mismatches of daily cash inflows and outflows.

(With inputs from agencies.)