The Securities and Exchange Board of India (Sebi) has proposed new rules that could give mutual fund companies more flexibility in managing short-term cash needs during the day.
If approved, asset management companies (AMCs) may be allowed to use intraday borrowing not just for redemption payouts, but also for several other operational requirements.
The move is aimed at helping fund houses manage liquidity more smoothly and avoid disruptions in trading activities.
What Is Sebi Proposing?
At present, mutual fund houses can use intraday borrowing mainly to handle redemption payouts to investors.
Now, Sebi wants to expand the scope.
Under the new proposal, AMCs may be allowed to take short-term borrowing during the day for purposes such as:
Managing liquidity needs
Settling trades
Meeting derivative-related obligations
Repaying existing borrowings
This could help fund managers operate more efficiently during market hours.
Borrowing Limit May Also Become More Flexible
Sebi has also proposed changes to how much mutual funds can borrow during the day.
Currently, these borrowings are linked to guaranteed and non-guaranteed receivables expected by the fund house.
Under the new proposal:
Intraday borrowing may exceed receivables temporarily
However, the total borrowing must stay within the regulatory limit of 20% of the scheme’s assets from the previous day
The regulator has made it clear that AMCs will remain responsible for repaying the borrowed amount by the end of the day.
If any intraday borrowing turns into overnight borrowing, it must still stay within Sebi’s existing rules and permitted usage limits.
Why Sebi Is Considering This Change
Earlier this year, Sebi had already allowed mutual funds to use intraday borrowing to bridge the timing gap between redemption payments and receivables expected on the same day.
But the implementation of those rules was postponed from April 1 to July 15 after fund houses highlighted operational difficulties.
Later, Sebi received feedback from AMCs and the Association of Mutual Funds in India (Amfi).
According to the industry, restricting intraday borrowing only for redemption payouts was creating challenges for fund managers.
It was affecting their flexibility to buy and sell securities during market hours and could also impact scheme returns.
The latest proposal is aimed at solving these issues while keeping borrowing within regulatory limits.