The Securities and Exchange Board of India (SEBI) has issued a circular allowing mutual funds to undertake intra-day borrowing to manage temporary cash mismatches while processing investor redemptions.
Mutual funds are generally permitted to borrow up to 20% of a scheme’s net assets for a maximum period of six months to meet requirements such as redemption payments, income distribution, or the settlement of certain trades. However, this 20% borrowing limit will not apply to intraday borrowings, provided they comply with specific conditions prescribed by SEBI.
SEBI clarified that intra-day borrowings may be used only for the repurchase or redemption of units or for the payment of interest or Income Distribution cum Capital Withdrawal (IDCW) payouts to unit holders.
The regulator has also capped the amount of intra-day borrowings. It must not exceed the guaranteed receivables due on the same day from the Government of India, Reserve Bank of India, and Clearing Corporation of India Limited.
The new framework will come into effect from April 1.
Must Read
- Advertisement -
