SEBI Approves Intraday Borrowing Framework for Mutual Funds for Liquidity Management

As per general market understanding, intraday borrowing refers to a short-term loan taken by an AMC to meet its temporary cash requirements during a single business day. As per SEBI's regulations (discussed ahead), the borrowed amount must be repaid before the end of the same trading day.

Note that the borrowing is used only to “bridge” a liquidity mismatch caused by differences in the timing of cash inflows and payment obligations. 

For example, 

• Suppose an AMC has to pay ₹100 crore towards investor redemptions at 11:00 a.m., but it is scheduled to receive ₹100 crore from security settlements or subscription inflows only at 3:00 p.m. 
• Although the fund has sufficient money receivable on the same day, it does not have the cash at the required time.
• In such a situation, the fund may avail an intraday borrowing to meet its payment obligation.
• Once the expected inflow is received later in the day, the borrowed amount is repaid.

Note that intraday borrowing is not an additional source of investment capital. It is  considered as a temporary financing facility that allows mutual funds to meet intra-day payment obligations. SEBI has permitted this facility only for specified purposes and subject to strict conditions. Let’s understand them in the next section.

As per SEBI Circular (HO/(92)2026-IMD-POD-2/I/16006/2026, dated July 10, 2026), several conditions have been imposed to ensure that intraday borrowings are used only for temporary liquidity requirements and not as a regular source of funding. 

Additionally, SEBI has also prescribed governance, record-keeping, and cost-related requirements for the use of the intraday borrowing facility. Let’s understand all these conditions in detail:

1. Permitted Purposes of Intraday Borrowing

A mutual fund can avail intraday borrowing only for the following purposes:

• To make payments to unitholders, such as redemption proceeds, IDCW (Income Distribution cum Capital Withdrawal) payouts, and interest payments.
• To meet the pay-in obligation for securities purchased by the scheme.
• To fulfil mark-to-market (MTM) obligations and settle foreign exchange transactions.
• To repay an existing borrowing taken by the scheme.

2. Limit on the Borrowing Amount

The amount that a mutual fund can borrow during the day cannot exceed the value of receivables expected on the same day. These receivables include:

• Guaranteed receivables, such as subscription inflows credited to the scheme's bank account, payments from the Reserve Bank of India (RBI), or receipts from Clearing Corporations.
• Non-guaranteed receivables that have been identified during the day and are expected to be received before the end of the trading day. These may include maturity proceeds and settlement receipts from instruments such as:
  • Non-Convertible Debentures (NCDs)
  • Commercial Papers (CPs)
  • Certificates of Deposit (CDs), and 
  • Over-the-Counter (OTC) swaps.

In addition to above, an AMC may borrow beyond these receivables only to meet redemption payments and other payouts to unitholders permitted under Regulation 42(1) of the SEBI (Mutual Funds) Regulations, 2026.

3. Repayment Requirement

The AMC must ensure that all intraday borrowings are repaid before the end of the same business day. If any borrowing remains unpaid and converted to overnight borrowing, it must comply with the borrowing limits and conditions prescribed under Regulation 42(1) of the SEBI (Mutual Funds) Regulations, 2026. 

4. Board-Approved Policy

The Board of the AMC and the Trustees of the mutual fund must approve a policy governing the use of intraday borrowings. This policy must be published on the AMC's website and should specify the:

• Approval process
• Internal controls
• Monitoring mechanism, and
• Other operational requirements for availing such borrowings.

5. Scheme-Wise Records

AMCs must maintain scheme-wise records for every instance of intraday borrowing. These records should specify the liquidity mismatch that resulted in the borrowing and the expected source of repayment, such as:

• Subscription inflows
• Maturity proceeds, or
• Settlement receipts expected on the same day.

6. Borrowing Cost and Losses

Any cost incurred on account of intraday borrowing must be borne by the AMC and cannot be charged to the mutual fund scheme or its unitholders. Similarly, if there is any loss or additional cost due to an unforeseen event or a delay in receiving the expected receivables against which the borrowing was taken, the AMC will bear the financial impact. 

So now you know what intraday borrowing is, why SEBI has permitted it, and the various conditions that an AMC must satisfy to avail of this facility. To revise, intraday borrowing is a "short-term borrowing"  arrangement that may help mutual funds bridge temporary liquidity mismatches arising from differences in settlement timings. As per SEBI guidelines, the borrowed amount must be repaid before the end of the same trading day.

It is not meant to finance investments or create leverage but to ensure the timely settlement of transactions and payments. As per the SEBI circular dated July 10, 2026, an AMC availing of intraday borrowing must satisfy the following requirements:

• Use the borrowing only for purposes permitted by SEBI.
• Keep the borrowing amount within the prescribed receivable limits.
• Repay the borrowing before the end of the same business day.
• Maintain scheme-wise records of the liquidity mismatch and repayment source.

Further, SEBI has clarified that all costs and losses arising from intraday borrowings must be borne by the AMC. These expenses cannot be charged to the mutual fund scheme or passed on to its unitholders.

For more information, you can visit ww.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. Will SEBI’s permission to avail “intraday borrowing” increase the risk of investing in mutual funds?

Note that intraday borrowing is only a temporary liquidity management facility. It may help mutual funds to meet short-term payment obligations arising from settlement timing differences. 

As per SEBI regulations, the borrowing must be repaid on the same day and cannot be used to increase the fund's investment exposure or leverage.

2. Will the cost of intraday borrowing reduce my mutual fund returns?

As per SEBI guidelines, the cost of intraday borrowing must be borne by the Asset Management Company (AMC). These costs cannot be passed on to the mutual fund scheme or its unitholders.

3. Can a mutual fund still borrow up to 20% of its net assets after SEBI introduced intraday borrowing?

Yes, the new intraday borrowing facility is in addition to the existing borrowing provision under the SEBI (Mutual Funds) Regulations. Mutual fund schemes may still continue to borrow up to 20% of their net assets to meet unitholder payout obligations, such as redemptions, subject to the applicable regulatory conditions. (Source: Business Standard Report, dated June 20, 2026).

4. Can mutual funds use intraday borrowing to make more investments?

No, as per SEBI regulations, intraday borrowing cannot be used to finance new investments or increase market exposure. It is permitted only for specific purposes such as:

• Unitholder payouts
• Settlement obligations
• Mark-to-market (MTM) payments
• Foreign exchange settlements, and 
• Repayment of existing borrowings