Description
SEBI specifies conditions for intraday borrowings by mutual funds effective April 1, 2026, and clarifies borrowing rules for equity-oriented index funds and ETFs under the new SEBI (Mutual Funds) Regulations, 2026.
Summary
SEBI has issued this circular to specify conditions governing intraday borrowings by mutual funds and to clarify borrowing rules for equity-oriented index funds and ETFs under the newly notified SEBI (Mutual Funds) Regulations, 2026. The circular becomes effective April 1, 2026, and addresses the intraday timing mismatch between redemption payouts and receipt of maturity proceeds.
Key Points
- Regulation 42(1) of SEBI (Mutual Funds) Regulations, 2026 allows mutual funds to borrow up to 20% of net assets for redemption/repurchase, interest payments, IDCW payouts, and settlement of under-executed sell trades by equity-oriented index funds and ETFs.
- Regulation 42(2) exempts intraday borrowings from the 20% cap, subject to conditions specified by SEBI in this circular.
- Intraday borrowings must not exceed guaranteed receivables due on the same day from Government of India, RBI, and CCIL.
- Eligible receivables for intraday borrowing include: TREPS maturity proceeds, reverse repo proceeds, G-Sec/T-bill/SDL/STRIPS maturity proceeds, interest on G-Sec/SDL, and sale proceeds of G-Sec/T-bill/SDL/STRIPS.
- Cost of intraday borrowing and any losses from unforeseen delays in receiving funds must be borne by the AMC.
- Borrowings by equity-oriented index funds and ETFs are permissible only for participation in the Closing Auction Session (CAS), effective August 3, 2026.
Regulatory Changes
- Introduces a formal framework for intraday borrowings under the new SEBI (Mutual Funds) Regulations, 2026 (notification LAD-NRO/GN/2026/294 dated January 14, 2026), replacing prior practice-based arrangements.
- Borrowing by equity-oriented index funds and ETFs is now explicitly linked to under-execution of sell trades in the Closing Auction Session introduced vide circular HO/47/11/11(3)2025-MRD-POD2/I/2765/2026 dated January 16, 2026.
Compliance Requirements
- AMC Boards and Boards of Trustees must approve and publish an intraday borrowing policy on the AMC website.
- Intraday borrowings restricted solely to redemption/repurchase of units or IDCW/interest payouts to unitholders.
- AMCs must ensure compliance with clauses 6 and 7 of the Fourth Schedule of SEBI (Mutual Funds) Regulations, 2026 and para 16.8 of SEBI Master Circular for Mutual Funds dated June 27, 2024.
- AMCs must cap intraday borrowings at guaranteed same-day receivables from GoI, RBI, and CCIL.
- All costs and losses arising from intraday borrowings must be absorbed by the AMC, not passed to unitholders.
Important Dates
- April 1, 2026: Effective date for intraday borrowing conditions specified in this circular.
- August 3, 2026: Effective date for Closing Auction Session (CAS) in equity cash segment; equity-oriented index fund and ETF borrowing rules for CAS participation apply from this date.
- January 14, 2026: SEBI (Mutual Funds) Regulations, 2026 notified.
- January 16, 2026: CAS circular issued.
- June 27, 2024: Reference date for SEBI Master Circular for Mutual Funds.
Impact Assessment
This circular has high operational impact on all AMCs managing liquid, overnight, equity-oriented index, and ETF schemes. AMCs must establish formal board-approved policies, update their websites, and reconfigure treasury operations to comply with the eligible receivables cap on intraday borrowings. The explicit cost-bearing requirement on AMCs for intraday borrowing expenses and delay-related losses increases AMC liability but protects unitholder interests. The linkage of equity ETF/index fund borrowing to the new Closing Auction Session adds a new compliance layer ahead of the August 2026 CAS launch.
Impact Justification
Introduces binding operational conditions for mutual fund borrowings under new SEBI (Mutual Funds) Regulations, 2026, effective April 1, 2026, affecting all AMCs, trustees, and liquid/overnight/equity ETF schemes.