SEBI's Bold Move: Expanding Intraday Borrowing for Mutual Funds

SEBI is proposing to expand the use of intraday borrowing for mutual funds beyond meeting redemption payouts. This move aims to address timing mismatches in cash management, allowing for flexibility in trade settlements, forex obligations, and derivative margin payments, enhancing fund operations and efficiency in payout obligations.

The Securities and Exchange Board of India (SEBI) has put forward a new proposal to broaden the application of intraday borrowing for mutual funds. This initiative aims to tackle operational hurdles encountered by asset management companies (AMCs), facilitating a more fluid cash management dynamic beyond merely honoring redemption payouts.

Presently, mutual funds utilize intraday borrowing as a pivotal financial management tool to meet payout obligations and settlement requirements. The proposed expansion would enable AMCs to employ these borrowings for various purposes, including pay-in obligations for trades and forex settlements.

The regulator clarified that intraday borrowing could exceed anticipated receivables but emphasized the need for repayments by day-end. SEBI encouraged public feedback on this proposal until June 3, pointing to industry's reliance on such borrowings to alleviate timing gaps in settlements across asset classes.