Sebi allows intraday borrowings by MFs to settle redemptions

Why in news

Sebi mandated that mutual funds must establish board-approved policies for intraday borrowing to bridge timing mismatches between fund inflows and outflows.

Background

Sebi clarified that intraday borrowings are restricted to specific purposes: repurchase or redemption of units, interest payments, or income distribution pay-outs. Asset Management Companies (AMCs) must bear the costs of these borrowings and are prohibited from passing on losses from delayed receivables to investors.

Facts for Prelims

• BodySebi: The primary regulator for the securities and commodity markets in India
• FactIntraday borrowings are permitted only for unit redemptions, interest payments, or income distributions
• FactAMCs are responsible for bearing the costs of intraday borrowing and losses from delayed receivables

For Mains

Q. Discuss how regulatory frameworks for mutual funds balance liquidity management with investor protection in volatile market conditions.

Dimensions to cover in your answer

• Liquidity mismatch: Addressing the timing gap between investor redemptions and asset liquidation
• Investor protection: Preventing the pass-through of AMC operational costs or delayed receivable losses to retail investors

Keywords: Liquidity Management · Regulatory Oversight · Investor Protection · Asset Management · Market Stability

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