SEBI has issued a new circular for the mutual fund industry, permitting mutual funds to engage in intra-day borrowing

SEBI has issued a new circular for the mutual fund industry, permitting mutual funds to engage in intra-day borrowing

¨     SEBI has issued a new circular for the mutual fund industry, permitting mutual funds to engage in intra-day borrowing.

¨     This facility is intended to address temporary mismatches in cash flow.

¨     Such mismatches may arise while processing investor redemption requests.

¨     Mutual funds are generally permitted to borrow up to 20 percent of a scheme's Net Assets.

¨   Such borrowing may be utilized solely for specific operational requirements. The maximum tenure for such borrowing is six months.

¨     These borrowings are typically utilized to fulfill redemption obligations.

¨     They may also be used to distribute income to investors. Furthermore, they can assist in settling certain financial transactions.

¨     The 20 percent borrowing limit applicable to general borrowings will not apply to intra-day borrowings.

¨     However, such borrowings must adhere to the conditions stipulated by SEBI.

¨     The regulator has clarified the permissible uses for these borrowings.

¨     They may be utilized to buy back mutual fund units. They may also be used to redeem units held by investors.

¨     They can also provide funding for interest payments to investors. Additionally, they can support payouts related to income distribution cum capital withdrawal.

¨     SEBI has also imposed a limit on the size of intra-day borrowings.

¨   The borrowed amount cannot exceed the guaranteed receivables expected to be received on the same day.

¨     These receivables may originate from the Government of India, the Reserve Bank of India, or the Clearing Corporation of India Ltd.

¨     The new regulatory framework will come into effect on April 1st.