The Securities and Exchange Board of India (Sebi) has proposed new rules that could give mutual fund houses more flexibility in managing short-term cash needs during the trading 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 managers handle liquidity more smoothly and avoid disruptions in trading activities.
What Sebi Has Proposed
Under the latest proposal, mutual fund houses may use intraday borrowing for purposes such as:
Managing liquidity during the day
Meeting trade settlement obligations
Handling derivative-related payments
Repaying existing short-term borrowings
Currently, the use of such borrowing is more restricted.
Sebi has also suggested allowing these borrowings to go beyond guaranteed and non-guaranteed receivables, provided the total borrowing stays within the regulatory limit.
The limit will continue to remain below 20% of the previous day’s assets of the scheme.
AMCs Will Still Have Responsibility
Even with greater flexibility, Sebi has made it clear that AMCs will remain responsible for managing repayment risks.
If the intraday borrowing exceeds receivables, the fund house must repay the amount by the end of the same day.
In cases where the borrowing turns into overnight borrowing, it must still remain within Sebi’s existing regulatory limits and permitted usage rules.
Why Sebi Is Considering This Change
Earlier this year, Sebi had already allowed AMCs to use intraday borrowing to manage the timing gap between redemption payouts and receivables expected on the same day.
However, implementation of those rules was postponed from April 1 to July 15 after mutual fund houses highlighted operational difficulties.
Industry bodies and AMCs later told Sebi that restricting intraday borrowing only to redemption-related purposes could create problems for fund managers.
According to the feedback received, the restrictions may:
Reduce trading flexibility
Affect buy and sell decisions during market hours
Impact overall scheme performance and returns
This feedback has now led to Sebi’s latest proposal to widen the scope of intraday borrowing for mutual funds.
