If you invest in mutual funds, this update is important for you. Market regulator Securities and Exchange Board of India has made the rules stricter for intraday loans taken by mutual fund companies (Asset Management Companies or AMCs).
The goal of this move is to protect investors and make the operations of fund companies more transparent.
Why Do Mutual Fund Companies Borrow Money?
Sometimes when investors withdraw money from a mutual fund, the fund company has to pay the amount the next morning (T+1).
However, the fund house usually receives the maturity proceeds of its investments later the same day in the evening.
Because of this gap between the morning payment and the evening inflow, companies may borrow money from banks for a short time, usually for just one day. This is called intraday borrowing.
SEBI has now said that fund companies must create a clear and strong policy for using such short-term borrowing.
New Conditions for Intraday Borrowing
Under the new rules, SEBI has clarified that fund companies can borrow only the amount they are certain to receive by the evening of the same day.
For example, if the company expects to receive money from government bonds or treasury bills later that day, it can borrow only that amount in the morning.
Normally, mutual funds are allowed to borrow up to 20% of their total assets. However, this limit will not apply to intraday borrowings as long as the new rules set by SEBI are followed.
How Investors Will Benefit
The new rules mainly aim to protect investors. SEBI has clearly stated that any interest or expenses related to this borrowing must be paid by the fund house itself. These costs cannot be deducted from investors’ money.
In addition, if there is any delay in receiving funds and it leads to losses, investors will not have to bear that loss. The responsibility will remain with the fund company.
These new provisions will also apply to index funds and ETFs starting from August 3, 2026.
