The Securities and Exchange Board of India (SEBI) has issued a circular allowing mutual funds to use an intraday borrowing facility to address liquidity mismatches arising from differences in market settlement timings. The circular, dated July 10, 2026, follows the amendment to the SEBI (Mutual Funds) Regulations, 2026 through Gazette Notification No. CG-MH-E-07072026-274229 dated July 3, 2026.
Under the new framework, mutual funds can avail intraday borrowings for unitholder payouts such as redemptions, IDCW payouts and interest payments, pay-ins for scheme investments, mark-to-market (MTM) obligations, foreign exchange settlements, and repayment of existing borrowings. The revised guidelines replace the borrowing provisions under clause 5.9.1 of the SEBI Master Circular for Mutual Funds dated March 20, 2026 and SEBI Circular No. HO/(92)2026-IMD-POD-2/I/7885/2026 dated March 25, 2026.
SEBI said the amount of intraday borrowing will be limited to guaranteed receivables, including inflows from the RBI, Clearing Corporations and subscription inflows received in scheme bank accounts. It may also cover non-guaranteed receivables expected by the end of the day, such as maturity proceeds and secondary market settlements from NCDs, CP, CDs and OTC Swaps. AMCs may additionally borrow intraday to meet redemption and other unitholder payouts under Regulation 42(1) of the SEBI (Mutual Funds) Regulations, 2026.
The regulator has directed Asset Management Companies (AMCs) to ensure all intraday borrowings are repaid by the end of the day. Any borrowing converted into overnight borrowing must remain within regulatory limits and permitted purposes. AMCs and trustees must approve a policy governing the use of the facility, publish it on the AMC’s website, maintain scheme-wise records of liquidity mismatches and expected repayment sources, and comply with clauses 6 and 7 of the Fourth Schedule of the SEBI (Mutual Funds) Regulations, 2026 and para 17.7 of the Master Circular.
SEBI also clarified that the cost of intraday borrowing, if any, will be borne by the AMC. Any loss or cost arising from unforeseen events or delays in receiving funds from receivables under clauses 2.2.1 and 2.2.2 will also be borne by the AMC. The circular will come into effect from September 1, 2026.
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