The Securities and Exchange Board of India (SEBI) on March 13, 2026 issued a circular regarding borrowing by mutual funds in light of the provisions of the SEBI (Mutual Funds) Regulations, 2026. The circular clarifies the framework for intraday borrowings and borrowing by equity-oriented index funds and ETFs.
SEBI stated that mutual funds may undertake intraday borrowings to manage timing mismatches between redemption payouts and receipt of maturity proceeds, particularly in liquid and overnight schemes. From April 1, 2026, such borrowings will be allowed only under specific conditions, including approval of a policy by the Board of the AMC and Trustees, usage solely for redemption or payout obligations, and limits linked to guaranteed receivables from entities such as the Government of India, RBI, and Clearing Corporation of India Limited. The cost or losses arising from such borrowings must be borne by the AMC.
The circular also clarifies that equity-oriented index funds and ETFs may borrow funds in cases of under execution of sell trades on stock exchanges, specifically to participate in the closing auction session introduced in the equity cash segment. This provision will apply from the effective date of the relevant SEBI circular introducing the closing auction framework.
[Notification No. HO/(92)2026-IMD-POD-2/I/6961/2026]
