SEBI Allows Intra-Day Borrowing by Mutual Funds

Current Context: On 13 March 2026, SEBI issued a circular permitting mutual funds to engage in intra-day borrowing.

• The new rules, effective from 1 April 2026, fall under the SEBI (Mutual Funds) Regulations, 2026.
• This facility addresses timing mismatches where redemptions are paid in the morning but inflows from TREPS or reverse repo arrive only in the evening, leaving funds temporarily short of cash.
• Unlike the usual 20% borrowing cap, intra-day loans are exempt but must follow strict guardrails.
• Borrowings can only be used for redemptions, repurchases, or IDCW payouts, not for speculation or leveraging.
• Funds cannot borrow beyond their guaranteed receivables due the same day from the Government of India, RBI, or clearing corporations.
• Any costs or losses from such borrowing must be borne by the Asset Management Company (AMC), ensuring investors are fully protected.
• This move enhances market stability, provides fund houses a regulated tool to manage liquidity stress, and ensures smooth redemption payouts for investors.

Question:

Q.1 How has SEBI treated intra-day borrowing with respect to the existing 20% borrowing limit?
a) Included within the limit
b) Reduced to 10%
c) Prohibited entirely
d) Exempted from the limit

Answer: d) SEBI has exempted intra-day borrowing from the 20% cap.