SEBI has introduced new guidelines allowing mutual funds to use an intraday borrowing facility. This move aims to help fund houses manage short-term liquidity needs more efficiently during market hours. The circular, published in July 2026, sets clear conditions for how this facility can be used.
Key Details of the Intraday Borrowing Facility
Under the new framework, mutual funds can borrow intraday to meet temporary cash flow mismatches. However, all such borrowings must be squared off before the close of the same trading day. Additionally, fund houses must ensure that these borrowings do not exceed the limits prescribed by SEBI’s existing regulations. Therefore, this facility is strictly a short-term liquidity tool, not a means of leveraging the fund’s portfolio.
SEBI also requires asset management companies (AMCs) to maintain proper records of every intraday borrowing transaction. As a result, regulators can monitor usage and ensure investor protection remains a top priority. Fund trustees, meanwhile, must oversee compliance with these norms on an ongoing basis.
What This Means for Mutual Fund Investors
For everyday investors, this facility primarily works behind the scenes. It helps fund managers handle sudden redemption pressures without being forced to sell underlying assets at unfavourable prices. For example, a debt fund facing large redemptions on a single day can use intraday borrowing to meet payouts smoothly. This, therefore, protects the interests of remaining unitholders.
However, investors should note that this does not change a fund’s investment strategy or risk profile. The facility simply gives AMCs a short-term operational tool. Additionally, since borrowings must be fully repaid the same day, there is no overnight credit risk introduced into the fund. As a result, the overall safety of the scheme remains intact.
Why This SEBI Move Matters for the Industry
The intraday borrowing facility brings Indian mutual funds closer to global best practices in liquidity management. Meanwhile, it also reduces the risk of forced asset sales during volatile market conditions. SEBI’s clear regulatory guardrails ensure that fund managers use this tool responsibly. This development, therefore, strengthens the overall stability of India’s mutual fund ecosystem and builds greater investor confidence.
Source: SEBI
