The SEBI Board Memorandum proposes recognising intraday borrowing as a cash management tool for mutual funds by amending Regulation 42 of the SEBI (Mutual Funds) Regulations, 2026. The proposal aims to permit intraday borrowings not only for redemption and unitholder payouts but also for pay-in obligations, forex settlements, derivative margin and MTM payments, and repayment of existing borrowings arising from timing mismatches in settlements. It also proposes allowing such borrowings against both guaranteed and non-guaranteed receivables, with additional borrowing up to 20% of a scheme’s net assets only for purposes already permitted under Regulation 42(1). Intraday borrowings must be extinguished by the end of the day, and any overnight borrowing must remain within regulatory limits. SEBI also proposes safeguards including board-approved policies, monitoring mechanisms, documentation, segregation of assets, and prescribed limits. The Board is requested to approve the amendments and empower the Chairman to implement the changes through regulations and circulars.
Also Read SEBI Press Release No. 33/2026 Dated: 19/06/2026: SEBI Approves Major Regulatory Reforms to Simplify Securities Market Processes
Securities and Exchange Board of India
Dated: 19th June 2026
Utilization of intraday borrowing lines by Mutual Funds
1. Objective
1.1. This memorandum seeks approval of the Board to recognize intraday borrowing utilized by mutual funds as a cash management tool. It is proposed to amend Regulation 42 of SEBI (Mutual Funds) Regulations, 2026 to allow mutual funds to avail intraday borrowings for bridging difference arising out of pay-in/ pay-out settlement timings within asset classes, forex settlements, borrowing payments, MTM of derivative positions etc. in addition to the already allowed purpose of meeting unitholder payouts such as redemptions etc. subject to certain safeguards.
2. Background
2.1. Regulation 42 of SEBI (Mutual Funds) Regulations, 2026 read as following
(1) The mutual fund shall not borrow except to meet temporary liquidity needs for the purpose of repurchase or redemption of units or payment of interest or Income Distribution cum Capital Withdrawal payout to the unitholders or for settlement of trades by equity oriented index funds and equity oriented exchange traded funds on account of under execution of sell trades on the stock exchange in the manner as may be specified by the board from time to time. The borrowing specified above shall be subject to —
a. such borrowing not exceeding twenty per cent of the net assets of the scheme; and
b. duration of such borrowing not exceeding a period of six months.
(2) The limit specified at clause (a) of sub-regulation (1) shall not be applicable for intraday borrowing subject to such conditions as may be specified by the board.
(3) …………
(4) ………
2.2. Based on representations made by Association of Mutual Funds in India (AMFI) on utilization of intraday borrowings by mutual funds to bridge the timing gap between redemption pay-outs and receipt of guaranteed receivables due on the same day from Government of India (Gol), Reserve Bank of India (RBI) and Clearing Corporation of India Limited (CCIL), a carve out was made to exclude intraday borrowings from the borrowing limit of twenty per cent of the net assets of the scheme, in SEBI (Mutual Funds) Regulations, 2026 which came into effect from April 1, 2026. The said amendment was carried out subsequent to approval of the Board in the meeting dated December 17, 2025 wherein it was considered that intraday borrowings are utilized to process redemption and other pay-outs to investors in the early morning hours. The quantum of such intraday borrowings is limited to the extent of guaranteed receivables from RBI and CCIL.
2.3. Based on the above amendment to regulation, certain safeguards and operational aspects on intraday borrowings were also prescribed by way of circular dated March 13, 2026.
2.4. While the above change was made to permit intraday borrowings for the specific purpose of meeting redemption and other unitholder pay-outs based on guaranteed receivables as represented by AMFI, due to operational challenges raised by AMFI and AMCs, the applicability of the guidelines related to intraday borrowing has been deferred till July 15, 2026.
3. Current practice of availing intraday borrowings
3.1. AMFI in a revised representation has highlighted that intraday borrowings are also availed by mutual funds from banks to meet the intraday liquidity requirement arising on account of timing mismatch between outflows in a scheme (for example, pay-in obligations, meeting redemptions etc.) and receivables from different sources (for example, pay-out receivables, maturity receivables etc.). Such intraday borrowing facilitates borrowing in the early hours of the day to enable mutual funds to meet their payout obligations and such borrowings are extinguished within the same day with the use of receivables of the scheme. Thus, intraday borrowing facility acts as a cash flow management tool for mutual funds.
3.2. The following scenario table submitted by AMFI illustrates differences in settlement timings:
| Table 1 | |||
| Scheme | Activity done on T Day | T+1 | |
| 1 | Equity Scheme | Cash – Deployed in TREPS – 200 cr. | The funds are received in the evening, post 5 P.M |
| Equity Purchases – 400 cr. T+1 settlement | The pay-in has to be done by 10.AM in the morning | ||
| Equity Sales – 500 cr. T+1 Settlement | The funds are received in the evening, post 4 P.M | ||
| 2 | Debt Scheme | Cash – Deployed in TREPS – 200 cr. | The funds are received in the evening, post 5 P.M |
| Corporate Bond Primary purchase through EBP Purchases – 400 cr. T+1 settlement | The pay-in has to be done by 10.AM in the morning | ||
| Corporate Bond Secondary Sale – 500 cr. – clearing through NSCCL | The funds are received throughout the day | ||
| 3 | Hybrid Scheme | Cash – Deployed in TREPS – 200 cr. | The funds are received in the evening, post 5 P.M |
| Corporate Bond Primary purchase through EBP Purchases – 400 cr. T+1 settlement | The pay in has to be done by 10.AM in the morning | ||
| Equity Sales – 500 cr. T+1 Settlement | The funds are received in the evening, post 4 P.M | ||
3.3. The purposes for which intraday borrowing facility is availed by mutual fund schemes are stated to include:
3.3.1. Difference in pay-out/ pay-in settlement timing across various asset classes and various instruments within an asset class.
3.3.2. Redemptions being processed in early morning hours
3.3.3. Forex settlements, borrowing payments, MTM of derivative position etc.
3.4. Thus, apart from meeting redemption payouts, intraday borrowing facility is also availed by Mutual Funds for purposes such as trade settlements (pay-in obligations), forex settlements, derivative obligations, repayment of existing borrowings etc.
3.5. Further, the quantum of intraday borrowings is not necessarily limited to guaranteed receivables, i.e., from Gol, RBI, CCIL and other clearing corporations but can also exceed both guaranteed and non-guaranteed (inflows from maturity proceeds/ secondary market settlement from NCDs, CP/ CDs, OTC Swaps, etc.) receivables of the scheme. However, it is the responsibility of the AMCs to ensure that such intraday borrowings are paid by end of the day and any such borrowings converted to overnight borrowings are within statutory limits and for the purposes allowed in Regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026.
4. Recommendation of Mutual Fund Advisory Committee (MFAC) and public consultation
4.1. Public consultation was carried out on the proposal to allow intraday borrowings by Mutual Funds to meet the intraday liquidity requirement and the quantum of intraday borrowings are not necessarily limited to guaranteed receivables but can also exceed both guaranteed and non-guaranteed receivables of the scheme. Subsequently, the matter was discussed in Mutual Fund Advisory Committee. A copy of the consultation paper is enclosed as Annexure Al.
Recommendation of MFAC and summary of public comments:
4.2. MFAC discussed the proposal for intraday borrowings by Mutual Funds and recommended as under:
4.2.1. Intraday borrowing should be allowed only for liquidity mismatches during the day and should be brought to zero at end of day. It should not be used as a source of leverage or funding.
4.2.2. The quantum of intraday borrowings should be restricted to:
i. Receivables sighted during the day (Guaranteed + Non-guaranteed),
ii. Intraday borrowing in addition to (i) above to the extent and purposes specified under Regulation 42(1) (i.e., for redemption pay-outs, etc.)
4.2.3. Intraday borrowings should be subject to the conditions which may include:
i. All the overnight borrowings (i.e., the borrowings outstanding at the end of the day) should be in accordance with Regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026.
ii. AMCs should maintain adequate documentation evidencing the underlying liquidity mismatch and the expected source of repayment for the intra-day borrowing.
iii. Usage of the facility should be governed by AMC/Trustee Board-approved policy specifying permissible purposes, limits, approval processes, and monitoring mechanisms.
4.2.4. MFAC also recommended that net settlement for DIIs should be allowed in line with FPIs.
4.3. Public consultation: Responses were received from 29 respondents (21 Mutual Funds, 1 Law firm, 1 Clearing Corporation, 1 Exchange, 2 Custodians, 2 Banks and 1 Consultant). The proposal and summary of responses is tabulated below:
| Proposal | Summary of comments | SEBI Remarks |
| 1. Whether the intraday borrowings for purposes other than meeting redemption/unitholder pay-outs may be allowed? | Mutual Funds (19), Exchange (1): Agree. The responses supported the proposal as it may lead to inefficient cash management and higher cash holdings.
Legal Firm (1), Consultant (1): Agree. Recommend that SEBI enumerate the permitted purposes clearly in the circular. A defined but non-exhaustive list (redemptions, trade pay-ins, forex settlements, derivative margin and MTM payments, repayment of existing borrowings) will provide operational clarity and prevent regulatory ambiguity. It was also suggested that safeguards shall be put in place for utilization of such limits, including AMC/Trustee board approved limits to ensure the facility doesn’t become a source of leverage. Custodian (1): Disagree. Additional intraday facility would increase leverage opportunity and make MFs a riskier investment option. Bank (1): Disagree. End use cases of Intraday borrowings be deliberated upon and be limited to only for Debt redemptions and Debt pay-ins. Other use cases like borrowing payment and FX settlements may be permitted as may be permissible by RBI such as RBI restricts bank finance for investment in equity. |
The intraday borrowings for purposes such as pay-in obligations, forex settlement etc. may be allowed considering the timing mismatch in receipt and payout by schemes. The money is received during late working hours while the payments has to be made in early morning hours.In addition to an illustrative list of purposes of intraday borrowings, certain safeguards such as permitted quantum of such borrowings, board approved policy, segregation of assets etc. may be specified. |
| 2. Whether the proposal to allow intraday borrowings being not limited to guaranteed receivables may be considered? | Mutual Funds (19), Exchange (1): The responses supported the proposal except by one MF. It was suggested that appropriate controls, monitoring framework and end of day extinguishment of such borrowings be applicable. It was also suggested to allow such facility for purposes of margin pay-outs for derivatives/TREPS and pay-out of scheme expenses.
One MF disagreed and stated that the intraday borrowings should be limited to guaranteed receivables for greater certainty. Legal Firm (1): Agree. AMCs be required to disclose in their intraday borrowing policy, the categories of receivables against which intraday credit is drawn, and that the trustee board review this categorisation annually. Consultant (1): Agree. However, such borrowings may be restricted highly liquid and high credit quality receivable such as Sovereign TREPS AAA or A1 rated and subject to appropriate limit. Bank (1), Custodian (1): Disagree. Inclusion of such non-guaranteed receivables for borrowing repayment would impose considerable liquidity and credit risk on the banking system.SEBI guidelines mandate mutual funds to pay the redemption proceeds to investors by 3 working days. For debt and liquid schemes the redemption proceeds can be paid on T+1 evening once all payouts are received rather than the payments released between 7.00–9.00 am banking on the intra-day from banks. Similarly, for the equity schemes the redemption pay-outs can be paid on T+2 in the evening. Investor would be receiving funds before the regulatory deadline. |
The mutual funds, especially debt schemes usually have considerable exposure to Commercial Papers and Certificate Deposits. The schemes receive money from such instruments later during the day, while pay-in even for the same instruments has to be made early morning. To address the timing difference, and protect investor returns, the intraday borrowings may be extended to non-guaranteed receivables as well.However, it will be responsibility of the AMCs that intraday borrowings are repaid by end of the day and any intraday borrowing converted to overnight borrowing shall be within regulatory limits and for the purposes allowed in SEBI (Mutual Funds) Regulations, 2026. |
| 3. Whether the proposal to allow quantum of intraday borrowings in excess of receivables would be appropriate measure provided the AMC ensures that it meets the regulatory requirements for overnight borrowings? | Mutual Funds (19), Exchange (1): Agree. AMCs have to ensure that the intraday borrowings are extinguished at the end of the day or are converted into overnight borrowings. Such overnight borrowings if any shall not exceed the regulatory limits and shall be for the purpose allowed.
Legal Firm (1): Agree. A requirement to match intraday borrowing quantum precisely to expected receivables is operationally unworkable. Recommend that SEBI require AMCs to put in place intraday monitoring systems that flag when intraday borrowings exceed a specified threshold of the previous day’s scheme AUM (for example, 15%), so that fund managers actively manage the position toward end-of-day extinguishment. Bank (1), Clearing Corporation (1): Disagree. The quantum shall be restricted to guaranteed receivable. It also heighten liquidity and credit risk on the banking system. Custodian (1): Disagree. The mutual fund being a CIS is expected to pool and manage the subscription funds received by way of investments and provide returns to the investors. As such, any purchase of securities or investments should be on clear funds available rather than on anticipated fund receipts. Intraday borrowing beyond receivable is pure leverage. |
The intraday borrowing facility over and above receivables may only be permitted to the extent allowed under the Regulations, i.e., for the purpose of redemptions, etc., and upto 20% of net assets of the scheme.It will ensure that MFs do not borrow over and above receivables in sight, or for the purposes already allowed under regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026.The above is in line with MFAC recommendation as mentioned in this Board Memorandum. |
| 4. Any other suggestions on the proposal may be provided with rationale. | Mutual Funds (10): Costs of intraday borrowings arising due to external factors, such as delays in CCIL settlements, stock exchange settlements, banking systems, or other market infrastructure disruptions, should not be borne by the AMC.
Extend Net Settlement Framework to Mutual Funds in Cash Equity Segment which would help MFs in cash management and reduce the amount of intraday borrowings. Intraday lending to non-debt mutual fund schemes is currently construed as capital market exposure for banks. Presently exposures backed by G Sec maturities or CCIL receivables are excluded from such computation. We request SEBI to recommend to RBI that receivables from other recognised stock exchanges also be considered eligible for exclusion. Legal Firm (1): Require AMCs to report intraday borrowing utilisation data to trustees on a monthly basis and to SEBI on a quarterly basis. Bank (1): A clear guidance on whether mutual funds can pledge instruments such as CPs and CDs held within scheme portfolio for the purpose of secured borrowings. Custodian (2): There is a need to review the pay-in and pay-out timelines for each segment of the market including any maturity payments. The banking system and capital markets have undergone technological changes with efficiencies and speed of settlement. RTGS & NEFT is 24×7 and the equity market has moved to T+1 settlement resulting in faster movement of funds. Following may reduce the quantum of intraday borrowings: – Corporate bond maturity and interest pay-outs does not have a deadline for payout. The receipt from such sources may be mandated to be received before, say 12 noon. Review EBP platform to extend pay-in up to 3 PM. – Redemptions can be made later in the evening and are within the regulatory guidelines. – There is a requirement to review the pay-in and pay-out timelines for each segment of the market including any maturity payments. |
Safeguards/guidelines on cost of intraday borrowings, board approved policy, segregation of assets, permitted quantum of intraday borrowings may be specified through circular.Extension of Net Settlement Framework to Mutual Funds in Cash Equity Segment would be considered, on same lines as that extended to FPIs.Capital market exposure for banks comes under the purview of RBI.Other suggestions may be examined after consultation with relevant stakeholders. |
5. Examination of issues and Proposal:
5.1. The requirement of intraday borrowings arises due to timing mismatches in outflows by schemes vis-a-vis’ receivables from different sources. Further, in case such intraday borrowings are not carried out by mutual funds, the same would lead to impact on fund management flexibility and returns of the scheme:
5.1.1. Since the pay-in has to be made before specific cut-off timings, the scheme receivables received later in the evening cannot be deployed effectively which may impact the returns of the scheme.
5.1.2. The fund managers decision-making would be impacted due to inability to make buy and sell trades during the same day.
5.2. In order to address liquidity mismatches on account of difference in market settlement timings, intraday borrowings for Mutual Funds may be considered also for purposes such as pay-in requirements, forex settlements, payment for MTM on derivatives and any other purpose as may be specified.
5.3. The quantum of intraday borrowings may be extended to non-guaranteed receivables (inflows from maturity proceeds/ secondary market settlement from NCDs, CP/ CDs, OTC Swaps, etc.) considering significant exposure of Mutual Funds to instruments such as CP, CDs, debentures etc. However, in line with recommendation of MFAC, such facility may be further extended upto twenty per cent of net assets of the schemes for specific purposes (redemption payouts, etc.) as allowed under regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026. Thus, the quantum of intraday borrowings may be allowed upto:
5.3.1. Guaranteed (inflows from RBI, Clearing Corporations etc.) and non-guaranteed (inflows from maturity proceeds/ secondary market settlement from NCDs, CP/ CDs, OTC Swaps, etc.) receivables sighted during the day.
5.3.2. Intraday borrowing in addition to clause 5.3.1 may be availed by AMCs solely for the purpose of meeting redemption and other pay-out to the investors as specified under Regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026.
5.4. It shall be the responsibility of the AMCs that intraday borrowings are repaid by end of the day and any intraday borrowing converted to overnight borrowing shall be within regulatory limits and for the purposes allowed in SEBI (Mutual Funds) Regulations, 2026.
5.5. Certain safeguards on intraday borrowings, such as permitted quantum, AMC and Trustee board approved policy, costs/ loss of borrowing, if any, to be borne by Scheme or AMCs, segregation and ring-fencing of assets and liabilities, etc. may be specified by way of issuance of circular.
6. Proposal for consideration and approval of the Board
6.1. The Board may consider and approve the proposals at para 5.2, 5.3, 5.4 and 5.5 above. The draft amendment to the SEBI (Mutual Funds) Regulations, 2026 and the draft notification for the proposed amendment are placed at
Annexure A2 and A3 respectively. The amendment shall come into force from the date of its publication in the Official Gazette.
6.2. The Board may authorize the Chairman to take steps to implement the proposals, with consequential and appropriate changes, as may be required, and to notify the necessary regulations and/or issue circular(s) in this regard.
Annexure Al
(Consultation paper is available on SEBI website www.sebi.gov.in at Reports & Statistics > Reports > Reports for Public Comments.)
Annexure A2
Amendment shall be notified after following the due process.
Annexure A3
Amendment shall be notified after following the due process.
