mutual fund
Taking an important decision for the mutual fund industry, the Securities and Exchange Board of India (SEBI) has simplified the rules for taking loans i.e. intraday loans during trading. The market regulator believes that this change will give asset management companies (AMCs) more flexibility in cash management and will help in reducing operational challenges.
Amendments to the Mutual Fund Regulations, 2026 were approved in the SEBI Board meeting held on Friday. Under this, now mutual fund companies will not be limited to using short-term loans taken during business only for returning money to investors, but will also be able to use it for trade settlement, payment of foreign exchange (FX) obligations and to meet derivative margin requirements.
Why was this decision taken
SEBI Chairman Tuhin Kant Pandey said that this decision has been taken keeping in mind the time gap that arises between the inflow and outflow of cash in different mutual fund schemes. Many times the fund house faces difficulty in fulfilling its payment obligations on time, in such a situation the credit facility available in the course of business plays an important role.
According to the new rules, mutual fund schemes will be able to borrow short-term to meet payment obligations arising from time gaps in payments and receipts, foreign exchange related settlements and changes in the value of derivative positions within the asset class. However, some regulatory safeguards will also be applicable for this.
SEBI clarified the rules
SEBI has made it clear that the amount of loan taken during business will be limited to the amount received during the day. If a scheme requires borrowing in excess of this limit, it can be used only for existing permitted purposes such as returning money to investors.
Additionally, asset management companies have to ensure that the entire loan taken during trading is repaid by the end of the same business day. If for any reason this borrowing continues till the next day, it will be valid within the regulatory limits and only for permitted purposes. Experts believe that this step of SEBI can prove to be an important reform in the direction of increasing the operational efficiency of the mutual fund industry, improving cash management and ensuring the protection of investors’ interests.
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