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Informist, Thursday, Jul. 2, 2026

 

By Rajesh Gajra

 

MUMBAI - The Securities and Exchange Board of India is considering extending the net settlement of funds framework in the equity cash segment of stock exchanges for foreign portfolio investors to mutual funds. This was indicated by SEBI in a response to feedback received from one or more mutual funds on the regulator's May 13 consultation paper on utilisation of intraday borrowing lines by mutual funds.

 

In its meeting held on Jun. 19, SEBI's board had approved the proposal to allow mutual funds to avail intraday borrowing not just for receivables sighted during the day but also to meet unitholder payouts, bridge differences arising from pay-in or payout settlement timings within asset classes, and other purposes.

 

SEBI had on Apr. 24 issued a circular allowing an FPI to settle funds obligation with its custodian arising out its cash market outright sell or purchase trades on a net basis instead of on a gross basis as previously mandated. SEBI had made this allowance after representations from FPIs and custodians that gross funds settlement of transactions led to liquidity pressures, funding costs due to forex slippage, and other operational inefficiencies, particularly during days of index rebalancing.

 

SEBI is now considering extending this framework to mutual funds, as per its response to a suggestion from one or more mutual funds, made in its memorandum to the board before the Jun. 19 meeting. The suggestion to extend net funds settlement framework to mutual funds was made on the argument that it would help mutual funds in cash management and reduce the amount of intraday borrowings.

 

In other feedback to the intraday borrowing consultation paper, a bank and a custodian had advised against allowing intraday borrowings for non-guaranteed receivables as that would impose considerable liquidity and credit risk on the banking system. SEBI did not accept this contention, arguing that the flexibility to borrow for non-guaranteed receivables would address the timing difference and "protect investor returns".

 

Another custodian had given its feedback to SEBI that mutual funds, being collective investment schemes, are expected to pool and manage the subscription funds received by way of investments. "As such, any purchase of securities or investments should be on clear funds available rather than on anticipated fund receipts," it said, adding that intraday borrowing beyond receivables was "pure leverage".  End

 

Edited by Rajeev Pai

 

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