New SEBI Rules from April 1 Limit Intraday Borrowing for Mutual Funds
SEBI allows mutual funds intraday borrowing only for redemptions, effective April 1, protecting investors from extra costs.
The Securities and Exchange Board of India (SEBI) on Friday introduced a regulatory framework governing intraday borrowings by mutual funds, formalizing a practice that had been informally followed in the industry while introducing safeguards to protect investors. The new rules will take effect from April 1 under the SEBI Mutual Fund Regulations, 2026.
Under the framework, mutual funds will be permitted to undertake intraday borrowings solely to meet investor redemption payouts. SEBI stated that the move aims to ensure smoother fund operations while preventing any misuse of short-term borrowing facilities. Borrowing will be allowed only against guaranteed receivables that are expected to be realized on the same day, with the amount capped relative to the value of such receivables.
Asset management companies (AMCs) are required to implement a formal intraday borrowing policy approved by their boards. The policy must define the operational framework, controls, and limits under which intraday borrowing can be undertaken. SEBI emphasized that the cost of borrowing must be borne by the AMC and cannot be passed on to investors, ensuring that fund participants are shielded from additional expenses arising from liquidity management.
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The regulations also provide protection in cases where expected receivables are delayed. Investors will not incur any borrowing costs if scheduled receipts fail to arrive on time, further strengthening safeguards for fund participants.
In addition, the framework allows exchange-traded funds (ETFs) and index funds to use intraday borrowings for participation in the closing auction of stock exchanges, providing operational flexibility while maintaining strict limits on short-term credit exposure.
SEBI’s move formalizes intraday borrowing in the mutual fund industry, introducing clarity, operational discipline, and investor protections to a previously informal practice. Analysts view the rules as a step toward enhancing transparency and risk management in fund operations.
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