The Securities and Exchange Board of India (SEBI) has relaxed rules governing intraday borrowing by mutual funds, allowing asset management companies (AMCs) to use such facilities for a wider range of liquidity management needs. The revised framework, announced through a circular issued on Friday, will come into effect from July 15 and aims to provide fund houses with greater operational flexibility.

Under the updated rules, mutual funds can now use intraday borrowings for purposes beyond meeting investor redemption requirements. The permitted uses include trade settlement obligations, cash flow management, foreign exchange settlements and payments related to derivative margins. The move is expected to help AMCs handle temporary liquidity requirements more efficiently during trading hours.

The revised guidelines remove the earlier condition that restricted intraday borrowing to situations involving guaranteed same-day receivables. SEBI said fund houses will now have more flexibility in managing short-term liquidity mismatches, while maintaining safeguards to ensure that such borrowings remain limited to intraday needs.

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Despite the relaxation, SEBI has maintained that all intraday borrowings must be fully repaid on the same day. The regulator also clarified that the cost associated with these borrowings will be borne by the asset management company and not passed on to mutual fund schemes or investors. Any losses caused by delayed receivables will also have to be absorbed by the AMC.

The changes come after representations from the mutual fund industry seeking more practical flexibility in managing operational challenges and settlement requirements. SEBI’s board had approved the proposal in June before the regulator issued the revised framework.

The new rules are expected to strengthen liquidity management practices within the mutual fund sector while protecting investor interests. By allowing broader use of intraday borrowing under strict repayment conditions, SEBI aims to help fund houses manage temporary cash flow pressures without changing the long-term borrowing discipline applicable to mutual fund schemes.

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