SEBI Approves Intraday Borrowing for Mutual Funds to Manage Liquidity Gaps

The Securities and Exchange Board of India (SEBI), at its board meeting on June 19, 2026, approved amendments to the SEBI (Mutual Funds) Regulations, 2026, to permit intraday borrowing by mutual fund schemes. This regulatory change addresses a long-standing industry request for flexibility to manage temporary liquidity mismatches that arise from settlement timing differences within a single trading day.

What Is Intraday Borrowing and Why It Matters

Intraday borrowing refers to short-term borrowing that is initiated and repaid within the same business day. Unlike overnight or multi-day borrowing, intraday borrowing does not carry over to the next settlement cycle. Mutual fund schemes frequently face temporary cash shortfalls during the trading day because of timing differences between when payments are due (pay-in) and when funds are received (payout).

For example, a mutual fund may need to make a securities pay-in at 10:00 AM on a given day, but the corresponding redemption proceeds or subscription inflows arrive only by 3:00 PM. Previously, schemes had to maintain larger cash buffers to cover these timing gaps, which reduced overall portfolio returns. The new intraday borrowing facility allows schemes to bridge these gaps temporarily without holding excess cash.

Permitted Uses of Intraday Borrowing

SEBI has specified that intraday borrowing can be used only for three defined purposes: bridging differences arising from pay-in and payout settlement timings within asset classes, managing foreign exchange (forex) settlement timing differences, and meeting payments for mark-to-market (MTM) obligations on derivative positions.

The facility cannot be used for leveraging the portfolio, making new investments, meeting redemption obligations beyond the same-day settlement, or any purpose other than the three specified uses. SEBI has introduced these restrictions to prevent misuse of the facility for speculative purposes.

Safeguards and Limits

The amendments include several safeguards to prevent excessive reliance on intraday borrowing. The total intraday borrowing at any point during the day cannot exceed a specified percentage of the scheme's net assets. All intraday borrowing must be fully repaid by the end of the same business day. Any instance of intraday borrowing that extends beyond the business day will be treated as overnight borrowing, which is subject to separate and stricter limits.

Fund houses must maintain detailed records of every intraday borrowing transaction, including the reason, amount, time of borrowing, time of repayment, and counterparty. These records must be available for inspection by SEBI and disclosed in the scheme's periodic reports. For related regulatory context, see the SEBI Mutual Funds Regulations 2026 overview.

Industry Impact

The intraday borrowing facility is expected to benefit open-ended equity and debt schemes the most, where daily settlement activity is highest. Large asset management companies (AMCs) with diversified scheme portfolios will be able to optimise cash management across schemes, potentially improving returns by 5 to 15 basis points for schemes with high turnover.

The amendment also aligns with SEBI's broader agenda of capital market reforms approved at the same June 19, 2026 board meeting, which included the GARUDA framework for AIFs and the reintroduction of open-market buybacks. For insights on the SEBI F&O margin framework and related changes, follow the SEBI Stock Brokers Regulations 2026 guide.

Key Takeaways

Mutual fund AMCs should update their treasury management systems to incorporate the intraday borrowing facility. Compliance teams must establish monitoring mechanisms to ensure borrowing stays within specified limits and is repaid within the same day. Trustees and boards of AMCs should review updated borrowing policies. Investors can expect marginal improvements in scheme performance as cash management becomes more efficient.

The amendments are expected to be notified through a formal circular in the coming weeks. For broader updates on India's financial regulatory landscape, see the RBI cross-border payment guidelines 2026 and the FEMA ECB Regulations 2026.