SEBI Opens the Door to Intraday Borrowing for Mutual Funds: A Look at the July 10, 2026 Circular

SEBI Opens the Door to Intraday Borrowing for Mutual Funds: A Look at the July 10, 2026 Circular

A new, tightly-conditioned liquidity tool for AMCs — separate from existing borrowing limits, but wrapped in fresh governance obligations.

Why This Circular Was Needed
Mutual fund schemes routinely face a timing problem: money owed to the scheme (from RBI, clearing corporations, maturity proceeds, or subscriptions) doesn’t always land in the scheme’s bank account at the same moment money is owed out — to investors for redemptions, or to counterparties for settlement obligations. This mismatch is purely a function of how settlement cycles are timed across different market segments, not a sign of any underlying liquidity stress in the scheme.

To address this specific, narrow problem, SEBI amended the SEBI (Mutual Funds) Regulations, 2026 on July 3, 2026, to formally permit intraday borrowing. This circular lays down the operating conditions for that facility.

What Counts as a Permitted Use
The circular restricts intraday borrowing to four categories of use:
1. Unitholder pay-outs — redemptions, IDCW pay-outs, interest, and similar payments to investors.
2. Investment pay-ins — meeting the scheme’s obligation to pay in for investments it has made.
3. MTM and forex settlements — mark-to-market obligations and foreign exchange settlement requirements.
4. Repayment of existing borrowings — clearing intraday positions already taken.
Notably, the facility is not framed as a general-purpose funding line. It exists solely to bridge same-day timing gaps — not to fund new investment decisions or substitute for a scheme’s normal liquidity management.

How Much Can Be Borrowed
The quantum of intraday borrowing is tied to what the scheme is actually expecting to receive that same day, split into three buckets:
• Guaranteed receivables — inflows from RBI, Clearing Corporations, and subscription money already received in the scheme’s bank accounts.
• Non-guaranteed but sighted receivables — amounts expected the same day from maturity proceeds or secondary market settlements on instruments like NCDs, CPs, CDs, and OTC swaps.
• An additional buffer beyond both of the above — but this extra headroom is available only for meeting redemptions and other unitholder pay-outs permitted under Regulation 42(1), not for any other purpose.
This tiered structure means the borrowing ceiling isn’t a flat percentage — it moves with the scheme’s actual expected cash position on any given day, with redemption-related needs given slightly more room than other uses.

The Same-Day Repayment Rule
This is the circular’s central safeguard: AMCs are responsible for ensuring intraday borrowings are repaid by the end of the day.
If a borrowing isn’t cleared intraday and rolls into an overnight position, it doesn’t get to keep the relaxed intraday treatment — it must instead fall back within the scheme’s regular regulatory borrowing limits and can only be used for purposes already permitted under Regulation 42(1). In effect, the intraday facility cannot be used as a backdoor way to extend short-term borrowing into something longer.

Governance and Documentation Requirements
SEBI has paired the flexibility of this facility with several accountability requirements:
• Board-approved policy: The Boards of the AMC and Trustees must approve a policy governing use of the intraday borrowing facility, covering approval processes and monitoring mechanisms, and this policy must be published on the AMC’s website.
• Scheme-wise records: AMCs must maintain records, scheme by scheme, of the underlying liquidity mismatch that triggered each borrowing and the expected source of repayment.
• Cross-compliance: AMCs must also ensure compliance with clauses 6 and 7 of the Fourth Schedule of the SEBI (Mutual Funds) Regulations, 2026, and paragraph 17.7 of the Master Circular.

Who Bears the Cost
In line with paragraph 11.10 of the Master Circular, the circular is explicit that:
• The cost of intraday borrowing, if any, is to be borne by the AMC — not charged to the scheme or passed on to investors.
• Any loss or additional cost arising from an unforeseen event, or from a delay in actually receiving the expected receivables described above, must also be absorbed by the AMC.
This allocation of risk is significant: it means AMCs cannot use the intraday facility in a way that shifts settlement-timing risk onto unitholders’ returns.

Effective Date
The circular takes effect from September 1, 2026, giving AMCs and Trustees a runway of roughly seven weeks from the date of issue to put the required board-approved policy, monitoring mechanisms, and scheme-wise record-keeping systems in place before the framework becomes operative.

Key Takeaways
1. Purpose-limited, not general-purpose. The facility exists strictly for same-day settlement mismatches across four specified categories — it is not an alternative source of investment funding.
2. Separate track from existing borrowing limits. Because it operates under its own quantum rules tied to expected receivables (rather than the standard scheme borrowing limits), AMCs need to track intraday exposure distinctly from regular borrowings.
3. Same-day discipline is non-negotiable. Any slippage into overnight borrowing pulls the transaction back under ordinary regulatory limits — there’s no relaxed treatment for delayed repayment.
4. Cost and risk sit with the AMC. Investors are insulated from the cost of this facility and from losses caused by delays in expected receivables — a deliberate protection built into the framework.
5. Governance runway before go-live. AMCs should treat the period between now and September 1, 2026 as implementation time — getting the board/trustee-approved policy in place, setting up scheme-wise documentation, and aligning treasury operations with the quantum and repayment rules.