SEBI eases mutual fund intraday borrowing rules in 2026

What SEBI changed and why it matters

SEBI has approved changes to the framework governing intraday borrowings by mutual funds, expanding the operational uses of short-term bank borrowing beyond investor redemptions. The change matters because mutual fund schemes routinely face timing mismatches between cash outflows and receivables during the trading day. By widening permitted uses, SEBI is positioning intraday borrowing as a cash-management tool rather than a facility largely limited to redemption payouts. At the same time, the regulator has retained safeguards designed to prevent these borrowings from becoming hidden leverage.

Expanded uses beyond redemptions

Under the revised framework, fund houses can use intraday borrowing for a wider list of operational requirements. SEBI explicitly allowed such borrowing for cash management needs including settlement of securities trades, foreign exchange transactions, and mark-to-market (MTM) obligations arising from derivative positions. It also permitted intraday borrowing for repayment of existing borrowings, and for bridging differences arising from pay-in and pay-out settlement timings within asset classes. These changes broaden the toolkit available to asset management companies (AMCs) when settlement cash flows do not arrive in the same time window as obligations.

Borrowing amounts can factor in expected inflows

SEBI has also eased restrictions around how much can be borrowed intraday. AMCs can now consider expected inflows that are not formally guaranteed when determining borrowing needs. The regulator cited examples such as proceeds from secondary market sales, maturity receipts, and other settlement-related cash flows. This allows borrowing beyond the level of guaranteed receivables, aimed at handling operational frictions that emerge during the day.

Same-day repayment remains mandatory

Even with broader usage and more flexible inflow recognition, SEBI kept a strict repayment rule. All intraday borrowings must be repaid before the end of the trading day. Any amount that remains unpaid beyond the same day will be treated as regular borrowing. Once it becomes regular or overnight borrowing, it must adhere to the existing borrowing limits prescribed under mutual fund regulations.

Key safeguards: no investor cost, no leverage intent

SEBI reiterated that the cost of intraday borrowing will continue to be borne by the AMC rather than by mutual fund investors. The regulator also said any loss arising from delays in receiving expected funds will be borne by the AMC, insulating unitholders from operational costs linked to timing mismatches. In addition, SEBI specified that intraday borrowings will not be used as a source of leverage. The structure aims to offer flexibility in execution while keeping the economic burden and operational risk with the fund house.

How this fits into the broader SEBI board decisions

SEBI’s board also approved the reintroduction of open-market buybacks through stock exchanges. Alongside the mutual fund borrowing changes, it enabled faster approvals for alternative investment funds (AIFs) and aligned norms for securitised debt instruments with the securitisation framework of the Reserve Bank of India (RBI). The board also relaxed rules around intraday borrowing for mutual funds and streamlined the process for transferring securities following the death of an investor. The common thread across these moves is operational streamlining while keeping investor protection principles intact.

Regulatory context: the 20% cap and the 2026 regulations

Under the current regime referenced in SEBI’s communications, borrowing is permitted up to 20% of the net assets of a scheme for meeting unitholder payouts such as redemptions. SEBI clarified that if intraday borrowing rolls over into overnight borrowing, it must remain within existing rules, including the cap limiting borrowing to 20% of a scheme’s net assets. Separately, SEBI has referenced that overnight borrowing can be up to 20% of a scheme’s net assets for up to six months, and only for approved purposes under the SEBI (Mutual Funds) Regulations, 2026. The expanded intraday facility sits within these longer-duration constraints.

Implementation timeline and industry feedback

SEBI’s discussion on operational hurdles has been linked to industry representations, including those from the Association of Mutual Funds in India (AMFI) and several AMCs. A SEBI circular dated March 13 included a planned start date of April 1, 2026, but the effective date was pushed back to July 15, 2026 after operational issues were raised. In a consultation process around these changes, SEBI also sought public comments by June 3, 2026. The sequence indicates the regulator’s focus on ensuring operational readiness before stricter compliance expectations apply.

Market impact: what changes for AMCs and investors

For AMCs, the revised framework expands the set of day-to-day situations where short-term borrowing can be used to manage cash flow gaps, particularly around settlement cycles, derivatives MTM demands, and forex settlements. It may also reduce the need to hold excess cash buffers solely for intraday frictions, though SEBI’s conditions make clear that costs and losses stay with the AMC. For investors, the core protection is explicit: borrowing costs and losses from delayed inflows cannot be pushed into scheme expenses as described by SEBI, and borrowings cannot be positioned as leverage. For the market ecosystem, smoother settlement funding can reduce operational stress during volatile sessions, while the end-of-day repayment rule limits risk from extended borrowing.

Summary of the revised intraday borrowing framework

Conclusion

SEBI’s approval to broaden intraday borrowing uses gives mutual funds a wider operational buffer for settlement, forex, and derivatives-related cash needs, while keeping strict same-day repayment discipline. The regulator has also reinforced that AMCs bear borrowing costs and any losses from delayed inflows, keeping unitholders insulated. The effective timeline referenced alongside these changes includes a shift of the start date to July 15, 2026, after industry feedback on implementation hurdles. Further operational clarity is likely to emerge through SEBI’s circulars and compliance guidance as the effective date approaches.