The Securities and Exchange Board of India (Sebi) is contemplating a significant change in the rules governing intraday borrowing by mutual funds. In a consultation paper released on Wednesday, Sebi proposed to allow mutual funds to utilize intraday borrowing from banks for a broader range of purposes, including trade settlements, forex obligations, and cash management, in addition to redemption payouts. This proposal follows earlier restrictions that limited borrowing to redemptions only, which were implemented in March 2023. The initial framework was set to take effect on April 1 but was postponed to July due to concerns raised by the Association of Mutual Funds in India (Amfi) regarding operational difficulties. Fund managers have indicated that intraday borrowing is essential for managing liquidity, especially when settlement cycles do not align across asset classes. The proposed changes aim to enhance fund management flexibility and potentially improve returns for mutual fund schemes. Sebi has invited public feedback on the draft paper until June 3.