Sebi allows intraday borrowings by MFs to settle redemptions

The Securities and Exchange Board of India on Friday tightened rules for intraday borrowings by mutual funds to manage temporary cash mismatches while processing investor redemptions.

At present, for liquid and overnight schemes, redemption pay-outs to investors are processed in the morning hours of the T+1 day, while mutual fund schemes receive maturity proceeds from TREPS (Triparty Repo in Government Securities) and reverse repo in the evening hours of the T+1 day.

In order to bridge the intraday timing mismatch of inflow and outflow of funds, mutual funds enter into formal intraday borrowing arrangements with financial institutions such as banks.


The regulator said starting next month, mutual funds must have a policy for use of intraday borrowing facility which is approved by the board of the asset management company (AMC) and trustees.

It said intraday borrowings should be used only for the purpose of repurchase or redemption of units or payment of interest or income distribution cum capital withdrawal pay-out to unitholders.

The amount of intraday borrowings should not exceed the guaranteed receivables due on the same day.

Eligible receivables include maturity proceeds from TREPS, reverse repo transactions, government securities, treasury bills, state development loans, and interest payments on government securities.

While new regulations allow mutual fund schemes to borrow up to 20% of their net assets for a maximum of six months for purposes such as repurchase or redemption of units, interest payments, or income distribution pay-outs, Sebi clarified that intraday borrowings will not be subject to the 20% limit, provided certain conditions are met.

The regulator also said the cost of intraday borrowing must be borne by the AMC, and any losses arising from delays in receiving receivables should not be passed on to investors.

Separately, Sebi said borrowing by equity-oriented index funds and exchange-traded funds due to unexecuted sell trades would be permitted only for participation in the closing auction session in the equity cash segment, once the mechanism becomes operational on August 3, 2026.