India’s securities regulator wants to allow mutual funds to use intraday borrowing for purposes beyond investor redemptions and payouts.
Asset managers in India currently use intraday borrowing to bridge mismatches between redemption payouts and receivables that are due on the same day.
The Securities and Exchange Board of India (Sebi) proposed in a consultation paper on May 18 to allow mutual funds to use intraday borrowing for trade settlements, foreign exchange transactions, margin requirements for derivatives, and other liquidity needs.
They could also temporarily borrow amounts exceeding expected inflows, provided the money is repaid by the end of the day.
Any borrowing that spills over into overnight positions would be subject to existing regulatory caps, including 20% of a mutual fund scheme’s net assets and a maximum term of six months.
Sebi is seeking public feedback until June 2 on the proposed changes, which would be effective July 15.
