SEBI Authorizes Intraday Borrowing for Mutual Funds to Bolster Liquidity

India's capital markets regulator, SEBI (Securities and Exchange Board of India), has announced a significant policy change allowing mutual funds to engage in intraday borrowing. Effective September 1, 2026, this new regulation is designed to provide fund managers with a tool to address short-term liquidity mismatches, particularly those arising from redemption pressures. The core objective is to facilitate smoother fund operations and ensure timely payouts to investors without resorting to potentially disruptive forced selling of assets. By enabling intraday borrowing, SEBI aims to enhance the operational efficiency and stability of the mutual fund industry. Crucially, the regulation stipulates that asset management companies (AMCs) will be solely responsible for covering all costs associated with such borrowing. This provision ensures that the financial burden and risk associated with these liquidity management tools are not transferred to the mutual fund schemes or their underlying investors. This cost absorption by AMCs is a key safeguard, intended to protect investor interests and maintain the integrity of the schemes' returns. This move comes amidst a growing mutual fund market in India, where managing large and sometimes unpredictable redemption flows is a continuous challenge. The delayed implementation date of September 2026 provides AMCs with ample time to develop and implement the necessary operational frameworks, risk management protocols, and internal accounting systems to comply with the new guidelines. It also allows the industry to adapt to this new financial instrument without immediate disruption, fostering a phased integration into current practices.