However, Sebi has retained the requirement that all intraday borrowings must be repaid on the same day. The regulator has also clarified that the cost of such borrowings will be borne by the AMC and not by the mutual fund scheme or its investors.
In addition, any losses arising due to delayed receivables will have to be absorbed by the AMC, the circular said.
The changes follow representations from the mutual fund industry, which sought greater flexibility in the use of intraday borrowing to address operational constraints and improve liquidity management.
The revised framework comes after Sebi’s board approved the proposal in June and will come into effect from July 15.
The broader borrowing framework is expected to help fund houses manage settlement obligations and short-term liquidity requirements more efficiently without affecting investor interests, while ensuring that temporary borrowings remain strictly intraday in nature.
All intraday borrowings must be repaid before the close of the trading day. Any amount rolled over into an overnight position is treated as regular borrowing and must strictly comply with existing regulatory limits which cap total scheme borrowing at 20% of net assets.
The Sebi mandates AMCs to have a mandatory board policy for such borrowing, saying each AMC’s board of directors and the board of trustees must approve a formal policy governing the use of these facilities, which must be publicly disclosed on the AMC’s website.
The new norms also allow equity-oriented index funds and ETFs to use intraday borrowings to cover sell trades that are not executed on time, but strictly to participate in the closing auction session on the stock exchanges.