The Securities and Exchange Board of India issued a circular setting out conditions for intraday borrowings by mutual funds under the SEBI (Mutual Funds) Regulations, 2026, and clarifying when equity-oriented index funds and equity-oriented exchange traded funds (ETFs) may borrow due to under-execution of sell trades on stock exchanges. From April 1, 2026, intraday borrowing policies must be approved by the board of the asset management company (AMC) and the board of trustees and published on the AMC website. Intraday borrowings may be used only to meet repurchase or redemption payouts or to pay interest or Income Distribution cum Capital Withdrawal (IDCW) to unitholders, and the amount may not exceed same-day guaranteed receivables from the Government of India, the Reserve Bank of India and Clearing Corporation of India Limited, limited to specified items including TREPS and reverse repo proceeds, maturity proceeds and interest on government securities and related instruments, and sale proceeds of those instruments. AMCs must also comply with specified provisions of the Fourth Schedule of the SEBI (Mutual Funds) Regulations, 2026 and the SEBI Master Circular for Mutual Funds dated June 27, 2024, and must bear any intraday borrowing costs and any loss or cost arising from unforeseen events or delays in receiving those receivables. For equity-oriented index funds and equity-oriented ETFs, SEBI clarified that borrowing on account of under-execution of sell trades is permissible only for participation in the Closing Auction Session in the equity cash segment, from the applicability of SEBI’s Closing Auction Session circular effective August 3, 2026 and in the manner specified in that framework.

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