SEBI: Circular On Borrowing By Mutual Funds Under Revised Mutual Fund Regulations

The Securities and Exchange Board of India ("SEBI") has issued a circular dated March 13, 2026 ("Circular"), providing an operational framework for borrowing by mutual funds under the SEBI (Mutual Funds) Regulations, 2026 ("MF Regulations"), which come into force on April 1, 2026.

Regulation 42(1) of the MF Regulations permits mutual funds to borrow up to 20% (twenty percent) of their net assets for specified purposes. These purposes include: (i) repurchase or redemption of units; (ii) payment of interest; (iii) Income Distribution cum Capital Withdrawal ("IDCW") payouts to unitholders; and (iv) settlement of trades by equity-oriented index funds and equity-oriented Exchange Traded Funds ("ETFs") where there is under execution of sell trades on the stock exchange. The duration of such borrowings is capped at 6 (six) months. Regulation 42(2) separately provides that the 20% (twenty percent) cap does not apply to intraday borrowings, subject to conditions prescribed by SEBI, which