SEBI Widens Intraday Borrowing Facility for Mutual Funds from September 1
The Securities and Exchange Board of India (SEBI) has widened the purposes for which mutual funds can use intraday borrowing to bridge same-day gaps between payments and receipts. The framework is set out in SEBI Circular No. HO/(92)2026-IMD-POD-2/I/16006/2026 dated 10 July 2026, "Intraday borrowing facility availed by mutual funds", and applies from 1 September 2026.
The circular is addressed to all mutual funds, asset management companies (AMCs), trustee companies, boards of trustees and the Association of Mutual Funds in India (AMFI). It matters for AMC treasury and operations teams, fund accountants, compliance officers, trustees and auditors of mutual fund schemes.
Legal basis and what it replaces
SEBI first amended the SEBI (Mutual Funds) Regulations, 2026 through Gazette Notification No. CG-MH-E-07072026-274229 dated 3 July 2026 to permit intraday borrowing for purposes to be specified by SEBI. The circular then specifies those purposes. It is issued under Section 11(1) of the SEBI Act, 1992, read with Regulations 42(2) and 84 of the Mutual Funds Regulations.
The circular supersedes the earlier guidelines on the subject in the Master Circular for Mutual Funds dated 20 March 2026 and SEBI Circular No. HO/(92)2026-IMD-POD2/I/7885/2026 dated 25 March 2026. AMCs therefore need to rewrite their borrowing procedures to the July framework, not merely add to the old one.
Permitted uses
Under paragraph 2.1 of the circular, a mutual fund may use intraday borrowing for:
- payouts to unitholders, including redemptions and income distribution payouts;
- pay-in obligations for investments made by a scheme;
- mark-to-market obligations and foreign exchange settlements; and
- repayment of existing borrowings.
The common thread is timing. A scheme may have to pay out money during the day while money due to it on the same day has not yet reached its bank account. The facility covers that gap; it is not a source of leverage.
How much can be borrowed
Paragraph 2.2 links the amount to receivables the scheme can identify on the day:
| Basis | Examples in the circular |
|---|---|
| Guaranteed receivables | Inflows from the Reserve Bank of India and clearing corporations, and subscription money already received in scheme bank accounts |
| Non-guaranteed receivables sighted during the day and expected by end of day | Maturity proceeds or secondary market settlement receipts from instruments such as NCDs, commercial paper, certificates of deposit and OTC swaps |
| Additional borrowing | Permitted only for redemptions and other payouts to unitholders |
For internal control, this means every drawdown should be tied to a specific receivable that is visible and due the same day, with the expected source of repayment recorded before the money is borrowed. The additional facility beyond receivables is restricted to unitholder payouts and cannot be used for investment pay-ins.
Repayment by end of day
Under paragraph 2.3, the AMC must ensure that intraday borrowing is repaid by the end of the day. If any amount turns into overnight borrowing, it must comply with the regulatory limits and permitted purposes for overnight borrowing under the Mutual Funds Regulations. End-of-day reconciliation of receipts, drawdowns and repayments therefore becomes a core daily control, with an escalation route when an expected receipt is delayed.
Policy, records and cost
- Policy (paragraph 2.4): the boards of the AMC and the trustees must approve a policy on use of the facility, covering approval processes and monitoring mechanisms, and the policy must be published on the AMC's website.
- Records (paragraph 2.5): AMCs must keep scheme-wise records of the underlying liquidity mismatch and the expected source of repayment.
- Other compliance (paragraph 2.6): clauses 6 and 7 of the Fourth Schedule to the Mutual Funds Regulations and paragraph 17.7 of the Master Circular continue to apply.
- Cost (paragraph 2.7): the cost of intraday borrowing, if any, is borne by the AMC, which also bears any loss or cost arising from a delay in receiving the identified receivables.
Because the cost and any delay-related loss fall on the AMC, borrowing charges must not be charged to the scheme. Fund accounting systems should capture these costs at the AMC level, and auditors of schemes can test that no such cost has been passed through to unitholders.
Checklist for AMCs
- Board-approved policy of the AMC and trustees, published on the website, with named approvers for drawdowns.
- A pre-drawdown check that identifies the receivable, its category and expected time of receipt.
- Scheme-wise logs of each borrowing, its purpose, amount and repayment source.
- Daily end-of-day repayment confirmation and a procedure for any amount that becomes overnight borrowing.
- Accounting treatment that books borrowing costs and delay losses in the AMC's books.
- Periodic reporting to trustees so that they can monitor use of the facility.
Updated on 27 September 2026: linked the SEBI circular of 10 July 2026 and verified its paragraph-wise requirements, added a table of borrowing bases and an AMC checklist, and tightened the text.
