SEBI’s Policy Shift Places Accountability On Asset Management Companies

Why The Move Matters
Mutual funds often face timing gaps between redemption requests and inflows from short-term instruments like TREPS or reverse repos. SEBI’s regulation bridges this gap, ensuring investors experience seamless redemptions without delays or added charges.

Framework And Implementation
The rule applies primarily to liquid and overnight schemes, which process large volumes of redemptions daily. Funds can now borrow intraday from financial institutions to manage liquidity, settle trades, and distribute income efficiently.

Impact On Investors And AMCs
For investors, the change guarantees reliability and confidence in redemption processes. For AMCs, it introduces accountability, as they must bear borrowing costs. This aligns with SEBI’s broader mission of safeguarding investor interests while strengthening operational efficiency in India’s mutual fund industry.

Key Highlights

• SEBI permits intraday borrowing for mutual funds from April 1, 2026
• Designed to manage short-term liquidity mismatches during redemptions
• Borrowing costs absorbed by AMCs, not investors
• Applies mainly to liquid and overnight schemes
• Enhances investor confidence and redemption reliability

Sources: SEBI circulars, Economic Times, BusinessLine