SEBI Expands Intraday Borrowing For Mutual Funds

The Securities and Exchange Board of India (SEBI) has expanded the scope of intraday borrowing for mutual funds, effective September 1. This move aims to address liquidity mismatches caused by differences in market settlement timings.

The revised framework allows asset management companies (AMCs) to use intraday borrowing facilities for a wider range of cash management needs. These include pay-in with respect to investments made by the scheme, mark-to-market (MTM) obligations, and foreign exchange settlements, in addition to unitholder payouts.

Earlier, mutual funds were only permitted to borrow to meet temporary liquidity needs for redemption and other unitholder payouts, subject to regulatory limits. The new rules will provide more flexibility to AMCs in managing their cash flows.

SEBI has allowed intraday borrowings to be availed against receivables expected during the day, including guaranteed inflows such as funds from the RBI, clearing corporations, and subscription proceeds received in scheme bank accounts. It can also be backed by non-guaranteed receivables sighted during the day, including maturity proceeds and secondary market settlements from instruments such as non-convertible debentures (NCDs), commercial papers (CPs), certificates of deposit (CDs), and over-the-counter (OTC) swaps.

The regulator has made AMCs responsible for ensuring that all intraday borrowings are repaid by the end of the day. Any borrowing that rolls over into an overnight borrowing must remain within the regulatory borrowing limits and be used only for purposes permitted under the regulations.

The boards of AMCs and trustees must approve a policy governing the use of intraday borrowing facilities, which must be disclosed on the AMC's website. AMCs must also maintain scheme-wise records explaining the underlying liquidity mismatch and the expected source of repayment for every intraday borrowing.

SEBI has clarified that the cost of intraday borrowing, as well as any loss or additional cost arising from unforeseen events or delays in receiving the expected receivables, will have to be borne by the AMC and not by the mutual fund scheme.

The move is expected to ease liquidity mismatches and provide more flexibility to AMCs in managing their cash flows. It is also seen as a positive step for the mutual fund industry, which has been facing challenges in recent times.

The expansion of intraday borrowing norms is part of SEBI's efforts to improve the functioning of the mutual fund industry and address the concerns of investors. The regulator has been working to strengthen the regulatory framework and enhance transparency and accountability in the industry.

The new rules will come into effect from September 1, and AMCs must ensure compliance with the revised framework. The move is expected to have a positive impact on the mutual fund industry and provide more flexibility to AMCs in managing their cash flows.

In the context of the Indian economy, the expansion of intraday borrowing norms is a significant development. It reflects the government's efforts to improve the functioning of the financial sector and enhance the stability of the economy. The move is also expected to have a positive impact on the overall development of the mutual fund industry in India.

In conclusion, the expansion of intraday borrowing norms by SEBI is a significant development that is expected to ease liquidity mismatches and provide more flexibility to AMCs in managing their cash flows. The move is part of the regulator's efforts to improve the functioning of the mutual fund industry and address the concerns of investors. It is expected to have a positive impact on the industry and the overall development of the economy.