The proposal aims to address liquidity gaps caused by differences in settlement timings for payouts and receivables.

The proposal follows representations from AMFI highlighting timing mismatches between payouts and receivables from entities such as the Government of India, RBI and CCIL.

SEBI had introduced a carve-out for intraday borrowings under the SEBI (Mutual Funds) Regulations, 2026, effective from 1 April 2026.

The regulator later prescribed safeguards through a circular dated 13 March 2026. These included board-approved borrowing policies, segregation and ring-fencing of assets and liabilities, and a requirement that borrowing-related costs be borne by asset management companies instead of investors.

Following operational concerns raised by AMFI and mutual funds, SEBI deferred implementation of the framework till 15 July 2026.

According to AMFI, mutual funds use intraday borrowing facilities to manage liquidity gaps during settlement cycles. Such borrowings are typically taken early in the day to meet redemption payouts or pay-in obligations and repaid later after receivables are credited.

AMFI said intraday borrowing is also used for trade settlements, forex settlements, derivative obligations and repayment of existing borrowings.

The industry body further stated that intraday borrowings may exceed guaranteed receivables as well as non-guaranteed inflows such as maturity proceeds and secondary market settlements. However, AMCs must ensure that such borrowings are repaid by the end of the day or converted into overnight borrowings within regulatory limits.

The consultation paper cited examples across equity, debt and hybrid schemes where pay-ins are required in the morning while receivables from equity sales, bond settlements or TREPS deployments are received later in the day.

SEBI said the absence of intraday borrowing facilities could affect fund management flexibility and scheme returns, as receivables credited later in the day may not be deployed effectively.

The regulator has proposed allowing intraday borrowings for purposes beyond redemption payouts and permitting such borrowings to exceed receivables, subject to regulatory safeguards. Any cost of such borrowing will continue to be borne by AMCs.

SEBI has invited public comments on the proposals till 3 June 2026.