The Securities and Exchange Board of India (SEBI) has proposed expanding the scope of intraday borrowing facilities for mutual funds, allowing fund houses to use short-term borrowing not only for investor redemption payouts but also for broader operational requirements.
The proposal is aimed at helping mutual funds manage temporary timing mismatches in settlements and improve day-to-day liquidity management. According to SEBI, the move could provide fund managers with greater operational flexibility while ensuring smoother handling of cash flows during market transactions.
SEBI released the consultation paper on May 13, 2026 and has invited public comments from stakeholders on the proposal.
At present, mutual funds are permitted to borrow funds on a temporary basis primarily to meet redemption obligations. However, settlement cycles and transaction timing differences can sometimes create short-term liquidity gaps even when sufficient assets are available within the portfolio. The regulator’s proposal seeks to address these operational challenges through expanded access to intraday borrowing.
The consultation paper also discusses safeguards and operational guidelines intended to ensure that such borrowing remains temporary and does not increase systemic risk within the mutual fund industry.
The proposal comes at a time when India’s mutual fund industry continues to grow rapidly, with increasing participation from retail investors and rising transaction volumes across equity and debt schemes. Improved liquidity management tools could help fund houses operate more efficiently in a fast-moving market environment.
SEBI has sought feedback from market participants before finalising the framework.
Source: Moneycontrol
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