New Delhi, March 13 -- The Securities and Exchange Board of India (Sebi) has formalized a framework for intraday borrowing by mutual funds, allowing them to temporarily take money without an upper limit to manage same-day liquidity mismatches.

In a circular issued on Friday, the regulator mandated board approvals and disclosures, and clarified the circumstances under which mutual funds can temporarily borrow from banks. Mutual funds are generally allowed to borrow up to 20% of a scheme's net assets, with the duration of such borrowings not exceeding six months. This ceiling will not apply to intraday borrowing carried out to meet redemption payouts, Sebi said.

To be sure, mutual funds already borrow intraday without an upper limit. Howe...