SEBI Gives Mutual Funds More Flexibility in Managing Daily Cash Needs
The Securities and Exchange Board of India (SEBI) has introduced a major relief for mutual fund companies.
The market regulator has relaxed rules related to short-term borrowing, allowing mutual funds to use borrowed funds for a wider range of daily cash management requirements.
Earlier, mutual fund schemes could take short-term loans mainly to meet investor redemption requests.
Now, they can also use these borrowings for trade settlements, foreign exchange obligations, derivative margin payments, and other day-to-day operational needs.
Why Has SEBI Changed the Rules?
Mutual fund companies often face temporary cash flow mismatches.
This happens when payments need to be made before expected funds are received.
To help asset management companies (AMCs) manage such situations smoothly, SEBI has approved amendments to the Mutual Fund Regulations, 2026.
The new rules will allow mutual funds to borrow money during trading hours to handle short-term liquidity gaps and meet settlement obligations on time.
According to SEBI Chairman Tuhin Kant Pandey, the changes are aimed at helping fund houses manage payment and receipt timing differences across various asset classes, foreign exchange transactions, and derivative-related payments.
What Borrowing Limits Will Apply?
SEBI has clarified that the amount borrowed during trading hours cannot exceed the funds expected to be received on the same day.
Any borrowing beyond this limit will only be allowed for investor redemptions, as per existing rules.
The current provision allowing mutual fund schemes to borrow up to 20% of their net assets for purposes such as returning money to investors will continue to remain in place.
Important Conditions for Mutual Funds
To prevent misuse, SEBI has put certain safeguards in place.
All borrowings taken during trading hours must be repaid before the market closes on the same day.
If any borrowing continues beyond the trading day, it will be treated as a regular loan and must comply with existing regulatory limits and permitted purposes.
The move is expected to improve liquidity management for mutual funds and help fund managers meet their financial obligations more efficiently without disrupting normal operations.
