Law Updates

Subject

Summary: SEBI has introduced an important amendment to the SEBI (Mutual Funds) Regulations, 2026, allowing mutual fund schemes to undertake intraday borrowing to manage temporary cash flow mismatches between the inflows and outflows of a scheme. The borrowing is permitted only for addressing same-day liquidity gaps and will be subject to conditions specified by SEBI. While the amendment does not change the broader restrictions on mutual fund borrowing it provides fund houses with greater operational flexibility to ensure timely redemption payments and more efficient cash management. What the Notification Actually Says Issuing authority: Securities and Exchange Board of India (SEBI) Notification date: 3 July 2026, Mumbai, published as the SEBI (Mutual Funds) (Amendment) Regulations, 2026 Effective date: The amendment came into effect on 3 July 2026, the date of its publication in the Official Gazette. Parent regulation amended: SEBI (Mutual Funds) Regulations, 2026, originally notified on 15 January 2026. Key amendment: Chapter VII, Regulation 42(2) has been substituted with the following provision: "Nothing in sub-regulation (1) shall restrict the mutual funds from intraday borrowing for addressing timing mismatch between outflows and inflows of a scheme, subject to such conditions as specified by the Board." In plain terms: if a mutual fund scheme has payments going out and money coming in on the same day, but the timing doesn't line up perfectly (e.g., redemption payouts due before securities-sale proceeds are credited), the fund can now borrow money intraday to cover that gap as long as it follows whatever specific conditions SEBI separately prescribes (limits, disclosure, repayment timing, permissible lenders, etc.). Why SEBI Introduced This Amendment Mutual fund schemes regularly experience temporary timing mismatches between cash inflows and outflows during their day-to-day operations. Redemption payments to investors are usually processed within a fixed T+1 or T+2 settlement cycle. At the same time, proceeds from the sale of portfolio securities, subscription money, or dividend and coupon receipts may be credited later in the day due to settlement cycles, clearing house processes or banking cut-off timings. Without a formal borrowing mechanism, fund managers would either have to maintain higher cash reserves, which could affect portfolio returns, or risk delays in meeting redemption obligations. Regulatory rationale 1. Investor protection and timely redemptions: Ensuring that investors receive their redemption proceeds on time is essential for maintaining confidence in mutual funds. By permitting intraday borrowing, SEBI has provided fund houses with a legitimate mechanism to meet redemption obligations even when expected inflows are received later in the day. 2. Reducing idle cash holdings: Earlier, fund managers often maintained higher cash buffers as a precaution against temporary liquidity gaps. While this improved liquidity, it also meant that a portion of the scheme's assets remained uninvested. The amendment allows funds to manage liquidity more efficiently without keeping excessive idle cash. 3. Alignment with global practices: Many mature financial markets, such as UCITS funds in Europe and mutual funds regulated under the US Investment Company Act, permit short-term borrowing for liquidity management subject to strict regulatory limits. By introducing a similar provision, SEBI brings India's mutual fund framework closer to internationally accepted practices. 4. Removing regulatory ambiguity: The earlier Regulation 42 already placed restrictions on borrowing by mutual funds to prevent excessive borrowing and protect investors. However, it did not clearly explain whether funds could borrow to manage temporary cash flow gaps during the day. The amendment clears up this position by allowing intraday borrowing only for such situations. 5. Responding to changing market dynamics: With T+1 settlement becoming the norm in Indian equity markets and the increasing use of debt and hybrid investment products, temporary gaps between cash inflows, and outflows have become a regular part of mutual fund operations. The amendment allows fund houses to manage these situations in a regulated and transparent manner. How Businesses (AMCs, Trustees, Custodians) Will Comply Since the actual "conditions" for this intraday borrowing are to be "specified by the Board" (SEBI) separately likely through a circular Asset Management Companies (AMCs) need to prepare on multiple fronts: 1. Await and implement SEBI's detailed conditions circular This will likely specify: borrowing limits (as a % of the scheme's net assets), permissible lenders (banks, clearing corporations), maximum borrowing tenure (must be same-day/intraday only), repayment timing, permissible schemes (equity, debt, hybrid) and interest cost treatment. 2. Update scheme documentation and SID/SAI Scheme Information Documents (SID) and Statement of Additional Information (SAI) should be updated to disclose the fund's intraday borrowing policy, limits and risk factors. 3. Establish internal treasury and liquidity management protocols AMCs need documented internal policies for: When intraday borrowing will be triggered  Approval workflows (fund manager, CFO, risk committee sign-off) Selection of counterparties/lenders for such borrowing Same-day repayment tracking 4. Board and Trustee approval AMC boards and mutual fund trustees will likely need to approve internal intraday borrowing policies and set scheme-specific limits within SEBI's overall framework. 5. Risk management and reporting systems Systems must be built or upgraded to track intraday cash positions in real time, flag mismatches, and execute borrowing/repayment within the same trading day. 6. Disclosure to investors Funds will likely need to disclose instances and costs of intraday borrowing in periodic scheme disclosures (portfolio disclosures, annual reports) for transparency. 7. Custodian and banking relationship management AMCs will need to formalise intraday credit facilities with custodian banks or clearing corporations, including documentation, credit limits, and interest rate terms. Who Gets the Maximum Benefit? The amendment is expected to benefit several stakeholders by improving liquidity management, operational efficiency and timely fund settlements. Asset Management Companies (AMCs) and mutual fund houses All SEBI-registered AMCs will benefit from greater flexibility in managing short-term liquidity, helping reduce the risk of technical delays in processing redemption payments. Funds with high redemption volumes or fluctuating daily cash flows, particularly liquid funds, ultra-short duration debt funds and overnight funds, are expected to benefit the most, as they are more likely to experience temporary timing mismatches.  Mutual fund investors (unit-holders) Investors are likely to benefit through: More reliable and timely redemption payouts, even when there are temporary settlement-related timing gaps. Better cash management by fund houses, allowing a larger portion of scheme assets to remain invested instead of being held as precautionary cash buffers, which may support overall fund performance. Custodian banks and clearing corporations Banks and clearing corporations that provide intraday credit facilities to AMCs may benefit from an additional source of fee or interest income by offering short-term liquidity support. Liquid and short-duration debt funds Liquid funds, overnight funds and other short-duration debt schemes, which handle large volumes of daily subscriptions and redemptions, are expected to experience the most significant operational benefits from this amendment. Who May Face Challenges or Additional Burden? While the amendment offers operational benefits, some stakeholders may need to strengthen their systems and compliance processes. Smaller AMCs with limited treasury infrastructure Smaller or newly established AMCs without advanced treasury and real-time risk management systems may need to invest in technology, internal processes and compliance frameworks before they can effectively use the intraday borrowing facility.  They may also find it more difficult to secure favourable intraday credit facilities compared to larger AMCs with well-established banking relationships. AMCs required to formalise internal processes AMCs will need to establish formal policies, documentation and approval procedures for intraday borrowing. Although this improves governance, it may also increase operational and compliance responsibilities. Compliance and audit teams Real-time monitoring, proper audit trails and periodic reporting of borrowing transactions will increase the workload for compliance and audit teams, particularly after SEBI issues the detailed operational guidelines. Risk of misuse As the exemption is limited to managing intraday timing mismatches, AMCs must ensure that it is not used as a substitute for broader borrowing or leverage. SEBI is also expected to maintain strict oversight to prevent misuse of the facility. What Was the Requirement/Need for This Amendment? The amendment addresses a practical operational gap while continuing to uphold the existing safeguards against excessive borrowing by mutual funds. Under the original SEBI (Mutual Funds) Regulations, 2026, which came into effect on 15 January 2026, Regulation 42(1) imposed broad restrictions on mutual fund borrowing as a prudential measure to prevent excessive leverage and protect investor interests. However, this general restriction also meant that mutual funds had no explicit regulatory provision allowing them to borrow even for the limited purpose of managing temporary intraday timing mismatches between redemption payouts and expected inflows, such as sale proceeds or subscription receipts. The amendment fills this gap by introducing a narrowly defined exception for intraday borrowing to address same-day liquidity mismatches. It does not relax the overall restriction on borrowing but permits this limited flexibility subject to the conditions that SEBI will prescribe separately. Impact on the Indian Economy The amendment is expected to strengthen the operational efficiency of the mutual fund industry while supporting overall market stability. Positive impacts Improved efficiency in the mutual fund industry: India's mutual fund industry manages assets worth over Rs 60 lakh crore. Better liquidity management can improve operational efficiency and help deliver better value to millions of investors. Strengthened investor confidence: Ensuring reliable, on-time redemptions strengthens trust in mutual funds as a savings and investment vehicle supporting continued growth in financial inclusion and household participation in capital markets (SIP flows, retail AUM growth). Deepening of money markets: Intraday borrowing facilities, once operationalized, could contribute to deeper, more liquid short-term money markets in India, as banks and clearing corporations develop dedicated intraday lending products for AMCs. Alignment with global regulatory standards: Bringing Indian mutual fund regulation in line with global norms (UCITS, US 1940 Act framework) makes the Indian fund management industry more comparable and attractive to global institutional allocators and potential foreign fund managers considering India-domiciled products. Minor economic risks or considerations If not tightly conditioned, there is a theoretical systemic risk if many funds simultaneously seek intraday borrowing during a market stress event, potentially straining short-term interbank/money market liquidity though SEBI's forthcoming conditions are expected to cap and structure this risk appropriately. Additional operational and compliance costs for the industry, though these are proportionate to the benefit and are typical of any regulatory refinement. Impact on India and Other Countries Although the amendment is primarily aimed at India's mutual fund industry, it also reflects the country's efforts to align its regulatory framework with global standards. For India specifically The amendment is a domestic regulatory change focused on improving liquidity management within India's Rs 60+ lakh crore mutual fund industry. It has no direct cross-border regulatory impact. At the same time, it supports India's broader objective of building a mature and globally competitive capital market. A stronger regulatory framework can enhance investor confidence, encourage greater foreign portfolio investment and support the growth of GIFT City as an international financial services hub. For other countries The amendment does not directly affect mutual fund regulations in other jurisdictions. However: Global asset managers with operations in India will need to align their India-specific treasury and liquidity management practices with the new provision. The amendment may also serve as a useful reference for emerging market regulators considering similar liquidity management measures for their domestic mutual fund industries. Is This the Right Decision, or an Additional Burden? The amendment strikes a balance between improving operational flexibility and maintaining regulatory discipline. Why this is a sound, well-calibrated regulatory decision It addresses a genuine operational challenge without weakening the existing safeguards against excessive borrowing by mutual funds. Since the exemption is subject to conditions prescribed by SEBI, the regulator continues to retain full control over borrowing limits, safeguards and monitoring. The amendment aligns India's mutual fund framework with internationally accepted liquidity management practices, reflecting the continued evolution of the country's capital market regulations. Its immediate implementation suggests that SEBI considers this an operational refinement rather than a major regulatory overhaul requiring a phased transition. Where it does create some burden AMCs, especially smaller ones, will need to build new treasury, risk, and compliance infrastructure to safely and transparently use this facility once SEBI's detailed conditions are released. Until SEBI issues its conditions circular, there is a period of regulatory uncertainty. AMCs know the exception exists, but cannot yet operationalize it without knowing the specific limits and safeguards. Overall, the amendment represents a practical regulatory improvement rather than an additional compliance burden. While AMCs may need to enhance their internal processes, the benefits of improved liquidity management and timely redemption payments are expected to outweigh the additional compliance efforts. How Will This Amendment Improve Market Efficiency and Investor Confidence? The amendment is expected to improve the overall functioning of the mutual fund industry while strengthening investor confidence. Investor satisfaction Timely redemption payments are one of the key factors influencing investor confidence. By reducing the possibility of payment delays caused by temporary settlement mismatches the amendment helps improve the overall investor experience. Better liquidity management may also enable fund managers to reduce unnecessary cash holdings and keep a larger portion of scheme assets invested, supporting overall fund efficiency. Market quality and transparency By clearly permitting intraday borrowing under defined conditions, the amendment removes regulatory uncertainty and provides greater clarity for the mutual fund industry. Once SEBI issues the detailed operational framework, disclosure requirements are expected to improve transparency around the use of intraday borrowing and liquidity management practices. Impact on the financial ecosystem Although the amendment has no direct environmental impact, it strengthens the resilience and efficiency of India's financial ecosystem. It also supports the development of a more structured short-term money market by encouraging formal intraday lending arrangements between AMCs, banks and clearing corporations. Implementation Timeline Date Event 15 January 2026 SEBI (Mutual Funds) Regulations, 2026, originally published 3 July 2026 SEBI (Mutual Funds) (Amendment) Regulations, 2026, notified Regulation 42(2) substituted 3 July 2026 (immediate) Amendment comes into force on the date of gazette publication Pending SEBI is expected to issue a separate circular specifying detailed conditions (limits, tenure, permissible lenders, disclosure requirements) governing intraday borrowing Corpseed Offering: Ensuring Seamless Compliance with the New Amendment This amendment creates a set of specialized advisory opportunities in the capital markets/AMC compliance space: 1. SEBI Compliance Advisory for AMCs Help AMCs interpret the amended Regulation 42(2) and prepare internal policies ahead of SEBI's detailed conditions circular, so they are ready to operationalize intraday borrowing as soon as the framework is finalized. 2. Treasury and Liquidity Risk Policy Design Assist AMCs (especially smaller/mid-sized ones) in designing formal intraday borrowing policies: approval workflows, borrowing limits, lender empanelment criteria and repayment tracking mechanisms. 3. SID/SAI and Scheme Document Updates Support AMCs in updating Scheme Information Documents and Statement of Additional Information to incorporate intraday borrowing disclosures once SEBI's conditions are known. 4. Custodian/Bank Facility Structuring Advise AMCs on structuring intraday credit facility agreements with custodian banks or clearing corporations, including documentation and regulatory compliance review. 5. Board and Trustee Governance Support Help AMC boards and mutual fund trustees draft and approve governance frameworks for intraday borrowing oversight, ensuring compliance with SEBI's eventual conditions. 6. Regulatory Monitoring and Alerts Service Offer a subscription-based SEBI regulatory tracking service for AMCs and fund houses, ensuring they don't miss the follow-up circular specifying the detailed conditions for this intraday borrowing exception and any future amendments to mutual fund regulations. 7. Training for Fund Operations and Compliance Teams Conduct focused training sessions for AMC treasury, risk and compliance teams on the new provision, its intended scope, likely regulatory expectations and best practices drawn from global mutual fund liquidity management standards.

Subject

Summary: SEBI has made a change that sounds small but actually matters a lot. Until now, when foreign investors wanted to invest in India, they had to pay certain fees in US Dollars. From now on, those same fees will be counted in Indian Rupees instead (though the investor can still pay using any foreign currency that is accepted). Along with this money change, SEBI has also updated some of the rules about when fees must be paid, what information investors must share, and how fast banks must send the collected money to SEBI. What the Notification Actually Says? Who made this rule: SEBI announced this rule on 3 July 2026 in Mumbai. It is called the SEBI ( Foreign Portfolio Investors ) (Amendment) Regulations, 2026. Which older rule does it change: It updates the SEBI (FPI) Regulations, 2019, which had last been changed in 2025. When it starts: Most of the new rules will start 180 days after this notice was printed in the government gazette, which works out to around early January 2027. But one small part of the rule (about removing an old cross-reference line) started immediately, on 3 July 2026. Key changes Fees are now counted in Rupees, not Dollars: Almost every fee that used to be a fixed number of US Dollars is now a fixed number of Rupees (though it can still be paid in any accepted foreign currency). When one must pay: Earlier, an investor had to pay the registration fee at the time they submitted their form. Now, they must pay it before SEBI gives them their registration certificate, so the fee must be settled a little earlier in the process. A new question has been added to the form: Investors must now also tell SEBI their date of birth (for a person) or the date their company/trust/partnership was formed. This is a new piece of information that wasn't asked for before. Faster money transfer to SEBI: The banks and firms that collect these fees from investors (called Designated Depository Participants, or DDPs) must now send the money to SEBI, in Rupees, within 5 working days of receiving it. A small cleanup: One confusing sentence in the old rule, which pointed to another part of the rulebook, has been removed because it was no longer needed. Fee item Old (in US Dollars) New (in Rupees) Registration fee (Category I FPI) 2,500 US Dollars Rs. 2,30,000 Registration fee (Category II FPI) 250 US Dollars Rs. 23,000 Late/renewal fee (higher slab) 50/day US Dollars Rs. 4,500/day Late/renewal fee (lower slab) 5/day US Dollars Rs. 500/day Application fee under Regulation 43B(2) 1,000 US Dollars Rs. 90,000 Offshore Derivative Instrument (ODI) fee per subscriber 800 US Dollars Rs. 75,000 Why SEBI Introduced This Amendment? Core rationale Making the money math simpler: Years ago, SEBI decided to charge foreign investors in US Dollars because it felt like a fair, steady currency to use worldwide. But SEBI itself collects and spends money in Rupees. So having fees in Dollars while everything else is in Rupees made the accounting messy. Switching to Rupees makes life easier for SEBI's own bookkeeping. Less confusion from currency ups and downs: A Dollar fee set many years ago slowly drifts away from its "real" Rupee value as exchange rates change over time. A Rupee-based fee stays steady and easy to plan around. Knowing investors better: By asking for the date of birth or the date a company was formed, SEBI can check more carefully who exactly is investing, this helps stop people from hiding behind shell companies or fake identities. Closing a small loophole: Before, someone could submit their form without having fully paid. Now, payment must be completed before they get their certificate, which tightens up the process. Getting the fee money faster: The new 5-day rule means SEBI receives the collected fees (and the details about them) much sooner, so it can keep better track of who is registering. Fits with SEBI's other July 2026 updates:  SEBI announced this rule on the very same day as some other fee-related changes (for custodians and mutual funds), showing this is part of a bigger cleanup effort happening at the same time. Compliance Requirements for Businesses For Foreign Portfolio Investors (FPIs) themselves Recalculate the registration, renewal, and late-fee budgets using the new Rupee amounts instead of the old Dollar amounts. Be ready to share the date of birth (if an individual) or date of formation (if a company, trust, or partnership) when registering or renewing. Make sure the fee is fully paid before SEBI issues the registration certificate, not just when one submits the form. If anyone deals in Offshore Derivative Instruments (ODIs), then one must now pay the new fee of Rs. 75,000 (or its foreign-currency equivalent) per subscription. For Designated Depository Participants (DDPs) Send all fees collected from investors to SEBI within 5 working days, whether it's a first-time registration fee, a renewal fee, or a late fee. Along with the money, submit the required details in the format SEBI asks for. Update the internal computer systems so they calculate fees in Rupees instead of old Dollar amounts. Add the new date-of-birth/formation-date field to the registration forms. Transition timing to note Most changes, the new fee amounts, the new form question, and the faster money-transfer rule, will only start 180 days after this notice was published, giving everyone about six months to prepare. The one small rule about removing the old cross-reference line started right away, on 3 July 2026. Benefits for Businesses Steadier fee planning: Since fees are now in Rupees, investors and DDPs don't have to keep worrying about Dollar-to-Rupee exchange rate swings affecting their costs. Easier accounting: No more juggling between Dollar-based regulatory fees and Rupee-based day-to-day accounting. Clearer registration process: Paying before getting the certificate removes any confusion about whether a registration is truly valid. Quicker processing: The faster 5-day money-transfer rule helps the whole registration system move more smoothly, so investors get certainty sooner. Who Benefits Most vs Who Faces Challenges? Because thousands of pension funds, sovereign wealth funds, hedge funds, and asset managers around the world invest in India through the FPI route, this change touches a very large group of investors, even though most of the individual changes are just administrative or currency-related, not big new restrictions. Category Likely Impact Large global custodians/DDPs (major banks) Manageable, they already have the systems needed to handle currency conversion and faster money transfers. Smaller/boutique FPIs (Category II) May see a small increase in effective cost depending on exchange rates, plus new paperwork to complete ODI subscribers (P-Note issuers) Fee recalculated from 800 US dollars to about Rs. 75,000, a currency adjustment, not a real fee hike. New FPI applicants Must get used to paying fees earlier and filling in the new date field from the start Existing registered FPIs Need to recalculate renewal and late fees in Rupees and update their compliance calendars. What Was the Requirement/Need for This Amendment? The old FPI Regulations from 2019 had fees fixed in US Dollars, a leftover choice from when SEBI wanted a currency that felt globally recognizable to foreign investors. Over time, this created friction: SEBI collects and spends money in Rupees domestically, but prices a large chunk of its fees in a foreign currency. This made its revenue swing up and down depending on exchange rates and made internal reporting harder. On top of that, global standards for knowing who really owns and controls an investing entity have gotten stricter, which is why the new date-of-formation question was added. The amendment also fixes the gap where fee payment wasn't firmly tied to getting the certificate, and it shortens how long DDPs can hold onto collected fees before sending them to SEBI. Impact on the Indian Economy Positive impacts More predictable fee income for SEBI: Rupee-denominated fees eliminate any unpredictability due to the movement in currency, which makes it easier for SEBI to plan its budget. Stronger checks support market trust: Stricter verification processes strengthen the market's trust. Requesting the incorporation date or date of birth makes sure that India's foreign investment system remains clean and transparent. Barely any change in cost of entry: Since this is mostly a currency relabelling rather than a real fee increase, it is unlikely to discourage foreign money from flowing into India. Smoother registration flow: Faster fee transfers from DDPs help keep the whole FPI registration system moving efficiently, which supports continued foreign investment. Minor economic considerations It is possible that some of the smaller FPIs, particularly those belonging to Category II and ODI Subscribers, may face an increase or decrease in their cost by a very small margin due to the application of the new Rupee cost, depending on what level the exchange rate is at during that time. Impact on India and Other Countries For India This change is part of SEBI's ongoing effort to modernize how India's capital markets are regulated, especially around keeping currency accounting consistent and knowing foreign investors better. It supports India's image as a well-run, trustworthy place for global investors to put their money. For other countries / global FPI ecosystem Global fund managers, pension funds, and sovereign wealth funds that invest in India through the FPI route will need their India compliance teams to: Update their internal fee budgets from Dollar figures to Rupee figures. Make sure their paperwork includes the newly required incorporation or formation date. Global custodian banks and DDPs operating in India will also need to update their systems for the new fee amounts and the 5-day transfer rule, but this is just an operational adjustment, not a barrier stopping them from investing. Nothing here suggests foreign investors will be discouraged from putting money into India; it's a currency and process cleanup, not a new restriction. Is This the Right Decision, or an Additional Burden? Why is this a sound decision Switching fees from Dollars to Rupees is a smart, practical update that removes currency confusion without really raising the true cost for most investors. The 180-day waiting period (except for the tiny immediate cleanup) gives everyone, investors, DDPs, and custodians, plenty of time to update their systems and paperwork. Asking for a formation or birth date is a light-touch addition that matches what other countries already require, without creating heavy extra paperwork. Tightening the payment timing and the money-transfer deadline improves discipline in the system without adding real cost. Where it creates some burden •    FPIs and DDPs will need to update their systems and paperwork to handle the new Rupee-based fees and the extra data field, a one-time setup cost. •    Firms that used to plan their budgets strictly in Dollars will need to redo their financial models, especially larger firms managing many FPI registrations across different countries. •    Having to pay the fee before getting the certificate (instead of at the time of submission) slightly tightens the timing for new applicants, though this is a minor procedural shift. Overall, this looks like a sensible, low-burden update to modernize the currency and process, not a new obstacle for foreign investment. The changes are mostly about paperwork and process, not about making it harder to invest. How This Improves Quality, Transparency, and Market Conditions? Regulatory quality and transparency Rupee-denominated charges will increase the clarity of the system of fees, being in line with the way of accounting in India, and hence less confusing for SEBI as well as the foreign investors. New requirements regarding the date of incorporation or birth would help SEBI check who the investors actually are and would contribute to making the foreign investment process more transparent. Investor confidence A fee system that is consistent in currency and well-documented helps global institutional investors trust that India's market rules are organized and well-run. No direct environmental angle This is purely a financial and administrative reform about market rules and fees, it has no connection to environmental matters. Implementation Timeline Category Likely Impact Large global custodians/DDPs (major banks) Manageable, they already have the systems needed to handle currency conversion and faster money transfers. Smaller/boutique FPIs (Category II) May see a small increase in effective cost depending on exchange rates, plus new paperwork to complete ODI subscribers (P-Note issuers) Fee recalculated from 800 US dollars to about Rs. 75,000, a currency adjustment, not a real fee hike. New FPI applicants Must get used to paying fees earlier and filling in the new date field from the start Existing registered FPIs Need to recalculate renewal and late fees in Rupees and update their compliance calendars. Corpseed Offering: Ensuring Seamless Compliance with the New Amendment This new rule opens up several ways to help the many foreign investors and firms affected by it: FPI Fee Transition Advisory: Help FPIs, DDPs, and custodians work out their new registration, renewal, and late-fee costs under the Rupee-based system before the 180-day deadline arrives, so no one makes a payment mistake during the switch. KYC/Documentation Update Support: Help FPIs prepare and submit the newly required date of birth, incorporation, or formation information as part of their registration or renewal filings. Registration Sequencing Compliance: Guide new FPI applicants through the updated rule that requires paying fees before receiving their certificate, so their registration goes through without delay. DDP Process Redesign Support: Help Designated Depository Participants update how they collect, convert, and transfer fees so they meet the new 5-working-day rule and reporting format. ODI Subscriber Compliance: Support entities dealing in Offshore Derivative Instruments in adjusting to the new Rs. 75,000 (foreign-currency equivalent) fee. Global FPI Client Advisory Desk: Offers dedicated support to international asset managers and custodian banks with India-related FPI operations, helping them handle the currency change and new paperwork smoothly, without disturbing their other compliance work across markets. Regulatory Monitoring Bundle: Since SEBI tends to release several related updates around the same time (as seen with the FPI, custodian, and mutual fund changes), offer a combined SEBI-tracking subscription for custodians, DDPs, and FPI-related firms to stay ahead of future rule changes.

Subject

Summary: The Securities and Exchange Board of India (SEBI) has amended the SEBI (Custodian) Regulations, 1996, to change the payment frequency of custodian registration fees from an annual basis to a monthly basis. The amendment will come into effect on 1 October 2026. This is primarily an operational change rather than a financial one. It does not introduce a new fee or significantly increase the overall registration cost for custodians. Instead, it changes the timing of fee payments and requires custodians to submit their Assets under Custody (AUC) details monthly rather than once a year. The amendment is intended to improve regulatory oversight while making fee payments more regular and aligned with business activity. Key Highlights of the SEBI Notification Issuing authority: Securities and Exchange Board of India (SEBI), Mumbai. Regulation amended: SEBI (Custodian) Regulations, 1996 (last amended 23 September 2025). Effective date: 1 October 2026 (a fixed future commencement date, unlike the mutual fund amendment, which took immediate effect). Key changes 1. Regulation 9(d) and Regulation 26(i): The word "annual" is replaced with "monthly" wherever it appears regarding fee payment. 2. Second Schedule, Part A, clause (iii) fee amount itself: The amendment also revises the fee structure under Part A, Clause (iii) of the Second Schedule. Earlier Fee Structure Annual fee of Rs 10,00,000 (Rs 10 lakh), or  0.0005% of the Assets Under Custody (AUC),  Whichever is higher.  Revised Fee Structure Monthly fee of Rs 85,000, or  0.0000416% of the monthly Assets Under Custody (AUC),  Whichever is higher.  Although the payment frequency has changed, the annual financial impact remains almost the same. Paying Rs 85,000 per month amounts to approximately Rs 10.20 lakh per year, which is only marginally higher because of rounding. This indicates that SEBI has restructured the payment schedule rather than increasing the registration fee. 3. Second Schedule, Part B, clause (II) payment mechanics: The amendment introduces a new payment mechanism for both existing and newly registered custodians. For New Custodians (Registered on or after 1 October 2026) A proportionate fee will be payable for the month in which registration is granted.  From the following month onwards, the full monthly registration fee must be paid.  Every payment must be made within 15 days from the end of the relevant month.  For Existing Custodians (Registered before 1 October 2026) They must pay a proportionate annual fee for the remaining period of FY 2026-27.  This payment must be made within 15 days from the commencement of the amendment.  Any annual registration fee already paid for a period extending beyond 1 October 2026 will be adjusted against the revised fee payable.  Starting the following month, custodians must switch to the monthly payment system. 4. Reporting requirement (sub-clause 4): Custodians must now submit their Assets under Custody (AUC) statement every month (instead of annually) along with the fee payment, in a SEBI-specified format, certified by the Functional Head of Custody Services as accurate and complete. Why Has SEBI Introduced This Change? SEBI has introduced this amendment to make the registration fee framework more efficient, improve regulatory reporting, and align fee payments more closely with the actual scale of custodial business. Aligning fee cash flows with actual business activity: Custodian AUC balances fluctuate throughout the year with market movements, fund inflows/outflows, and new client onboarding. An annual fee based on a single point-in-time AUC snapshot can be a poor proxy for the custodian's actual scale of business over the full year. Monthly fees based on monthly AUC make the fee structure more dynamically accurate. Improved regulatory oversight through more frequent data: Requiring a monthly AUC statement (rather than annual) gives SEBI far more granular, timely visibility into custodian balance sheets and market-wide custody trends useful for systemic risk monitoring, especially as India's AUM/AUC base has grown substantially. Smoothing SEBI's own fee revenue and administrative cash flow: Annual lump-sum collection creates uneven cash inflows for SEBI, monthly collection provides steadier, more predictable regulatory fee revenue. Reducing large one-time payment burden on custodians: Paying Rs 85,000/month (or the AUC-based equivalent) is administratively easier for many custodians than budgeting for a single Rs 10+ lakh annual outflow, improving cash flow predictability on the custodian's side too. Consistency with other SEBI fee-frequency reforms: SEBI has been moving multiple categories of market intermediaries toward more frequent, data-linked fee and reporting cycles as part of a broader modernization of its regulatory fee framework, improving real-time regulatory data rather than annual retrospective snapshots. Compliance Requirements for Custodians To ensure a smooth transition to the new fee payment framework, SEBI has prescribed separate compliance requirements for existing and newly registered custodians. In addition to changing the payment frequency, custodians will also need to adopt a monthly reporting process for their Assets under Custody (AUC). For Existing Custodians (Registered Before 1 October 2026) Custodians already registered before the amendment comes into effect must comply with the following requirements: Pay the Transition Fee: A proportionate annual registration fee for the remaining period of FY 2026-27 (1 October 2026 to 31 March 2027) must be paid within 15 days from 1 October 2026.  Adjust Previously Paid Fees: If an annual registration fee has already been paid for a period extending beyond 1 October 2026 the amount will be adjusted against the revised fee payable under the new framework.  Begin Monthly Fee Payments: From November 2026 onwards, custodians must pay the applicable monthly registration fee within 15 days after the end of each month.  Submit Monthly AUC Statements: Every monthly fee payment must be accompanied by an Assets under Custody (AUC) statement in the format prescribed by SEBI. The statement must also be certified by the Functional Head of Custody Services.  For New Custodians (Registered On or After 1 October 2026) Custodians obtaining registration on or after 1 October 2026 must comply with the following requirements: Pay a proportionate registration fee for the month in which registration is granted.  Pay the full monthly registration fee from the following month onwards within 15 days from the end of each month. Submit a certified monthly AUC statement along with every monthly fee payment from the beginning of their registration.  Operational Changes Required for Compliance To comply with the amended regulations, custodians will need to update their internal processes and systems. While the overall fee remains largely unchanged, the monthly compliance cycle requires several operational adjustments. Operational/systems changes needed Finance and treasury teams must move from an annual fee-budgeting cycle to a monthly recurring payment process requiring updated internal calendars, approval workflows and possibly automated payment scheduling. AUC reporting systems must be capable of generating accurate monthly (not just annual) AUC figures, since the fee is based on AUC in that specific month. Certification workflow: The Functional Head of Custody Services must review and certify each monthly AUC statement formalizing an internal monthly sign-off process where an annual one previously sufficed. Fee calculation logic: Systems need to compute the higher of (Rs 85,000 flat) or (0.0000416% of that month's AUC) every month, rather than once a year. Benefits Businesses (Custodians) Get Although the amendment introduces more frequent reporting, it also offers several operational and financial advantages for custodians. Improved Cash Flow Management: Replacing a single annual payment with monthly payments spreads the financial outflow across the year. This allows custodians to manage their cash flows more efficiently and makes budgeting easier, particularly for mid-sized institutions. Better Alignment between Fees and Business Size: Since the AUC-based fee is calculated every month, the registration fee reflects the custodian's current level of business more accurately. Organisations with fluctuating AUC will no longer rely on a single annual snapshot that may not represent their overall operations. Reduced Upfront Financial Burden: Monthly payments eliminate the need to arrange a large lump-sum payment once a year. This improves working capital management and allows organisations to distribute compliance costs more evenly throughout the year. More Consistent Regulatory Compliance: Submitting monthly AUC statements encourages continuous compliance instead of concentrating reporting activities into a single annual exercise. This can help custodians maintain better regulatory records as well as strengthen internal compliance practices. Who Benefits Most vs Who Faces More Burden Aspect Larger/Established Custodians Smaller/Newer Custodians Cash flow impact Minimal large balance sheets easily absorb monthly vs annual timing More favourable spreads cost, easing working capital pressure Reporting infrastructure Likely already capable of monthly AUC reporting May need to build new monthly reporting/certification processes Compliance overhead Marginal increase (12 filings vs 1) Proportionately larger burden relative to their compliance team size Net effect Slight administrative increase, otherwise neutral Net positive on cash flow, but added reporting workload Since only a handful of SEBI-registered custodians operate in India (mainly banks and large financial institutions offering custody services, e.g., major banks and specialized custody arms of financial groups), this amendment is a sector-specific, relatively low-impact operational change rather than one affecting large numbers of businesses. Impact on India's Economy Although the amendment affects only a small group of SEBI-registered custodians, it strengthens regulatory oversight and improves the efficiency of the compliance framework without creating any significant economic impact. Positive Impact Better Regulatory Oversight: Monthly AUC reporting gives SEBI access to more timely and accurate data, helping it monitor custody-related risks more effectively and strengthen oversight of India's growing capital markets. Improved Cash Flow Planning: Monthly fee payments replace a single annual payment, making it easier for custodians to manage cash flows and budget compliance expenses throughout the year. Supports Regulatory Modernisation: The amendment aligns with SEBI's broader objective of introducing more frequent reporting and improving the efficiency of regulatory supervision across market intermediaries. Limited Economic Impact: Since the amendment applies only to a limited number of custodians, it is unlikely to have any significant impact on India's overall economy or financial markets. Impact on India and Other Countries Limited to India: The amendment applies only to SEBI-registered custodians operating in India and has no direct impact on foreign regulatory frameworks.  Global Custodians in India: International custody service providers operating in India must update their Indian compliance and reporting processes, while their overseas operations remain unaffected.  No Cross-Border Market Impact: The amendment is an administrative compliance reform and is not expected to influence global financial markets or international regulations. Is This the Right Decision, or an Additional Burden? Overall, the amendment is a balanced regulatory reform. While it introduces more frequent reporting requirements, it does not significantly increase the financial burden on custodians. Instead, it modernises the fee payment framework, and maintains regulatory oversight. Why This Is a Positive Change No significant increase in registration fees: Although the payment frequency changes, the annual fee remains almost the same. This confirms that the amendment is aimed at improving the payment structure rather than increasing costs.  Better alignment with business activity: Monthly AUC-based fee calculations reflect the custodian's actual scale of operations more accurately than a single annual assessment.  Well-planned transition: SEBI has provided a clear implementation timeline, allowing custodians sufficient time to update their systems, processes, and compliance workflows before the amendment takes effect.  Improved regulatory efficiency: Monthly reporting enables SEBI to monitor market developments more effectively and respond to potential risks in a timely manner.  Additional Compliance Requirements More frequent reporting: Custodians must now submit 12 AUC statements each year instead of one annual statement. System and process upgrades: Organisations may need to update their finance, reporting, and internal approval systems to support monthly fee calculations, payments, and certifications. Overall Assessment The amendment is more of an operational change than a significant compliance burden. While custodians will have to move to monthly fee payments and reporting, the overall cost remains almost the same, making the transition practical and manageable. How This Improves Quality, Transparency, and Market Conditions The amendment strengthens regulatory transparency by introducing more frequent reporting, improving data quality and supporting more effective supervision of custodians. Stronger Regulatory Oversight Monthly AUC reporting provides SEBI with more timely and reliable information, enabling better supervision of custodians and improving its ability to identify potential risks within the financial system. Improved Data Accuracy The requirement for certification by the Functional Head of Custody Services strengthens accountability and encourages organisations to maintain accurate and up-to-date custody records. Better Protection of the Financial System Although custodians do not directly deal with retail investors, they play a critical role in safeguarding assets held by mutual funds, pension funds, insurance companies, and foreign portfolio investors. Better regulatory visibility over custodians indirectly supports the safety and integrity of India's capital markets. No Environmental Impact The amendment relates solely to the payment of registration fees and reporting requirements. It does not have any direct environmental or sustainability implications. Implementation Timeline The following timeline highlights the key compliance deadlines under the SEBI (Custodian) (Amendment) Regulations 2026, helping stewards prepare for a smooth transition to the new framework. Date Event 16 May 1996 Original SEBI (Custodian) Regulations, 1996, published 23 September 2025 Last prior amendment to Custodian Regulations 3 July 2026 SEBI (Custodian) (Amendment) Regulations, 2026 notified 1 October 2026 Amendment comes into force monthly fee regime begins Within 15 days of 1 October 2026 Existing custodians must pay a proportionate annual fee for remainder of FY 2026-27 From November 2026 onward Full monthly fee and monthly AUC statement due within 15 days of each month-end Corpseed Offering: Ensuring Seamless Compliance with the New Amendment Since SEBI-registered custodians are a small, concentrated group of large financial institutions, Corpseed's opportunity here is narrower but high-value: 1. Transition Compliance Advisory Help custodians calculate the correct proportionate annual fee for the FY 2026-27 transition period, including adjustment credits for fees already paid, ensuring accurate payment within the 15-day window after 1 October 2026. 2. Monthly Fee and AUC Reporting Process Design Design and implement a recurring monthly compliance calendar/process for fee calculation, payment and AUC statement submission, replacing the old annual cycle. 3. Internal Certification Workflow Support Help custodians formalize the internal sign-off process by the Functional Head of Custody Services, ensuring monthly AUC statements are accurate, complete and audit-ready. 4. SEBI Format Compliance Track and advise on the SEBI-specified format for monthly AUC statements once formally circulated, ensuring custodians' reporting templates stay aligned with regulatory expectations. 5. Regulatory Monitoring Subscription Given SEBI's pattern of issuing multiple related amendments together (custodian fees, mutual fund borrowing, on the same date), offer custodians and AMCs a consolidated regulatory tracking service covering all SEBI notifications affecting their specific business line. 6. Training for Finance and Compliance Teams Conduct focused sessions for custodian finance and compliance teams on the new fee mechanics, transition-period calculations, and monthly reporting obligations ahead of the 1 October 2026 effective date.

Subject

Summary: In order to protect the investors and minimize regulatory clutter, SEBI's June 2026 framework on AIF winding-up, inoperative fund status, and retention of proceeds aims to cleanly close the legacy funds. It is a structured "end-of-life" regime for funds that are essentially over, not a closure of AIFs.  What this 2026 policy does? SEBI amended the AIF Regulations in April 2026 and, through the circular dated 16 June 2026, has now laid down detailed rules for: 1. Retention of liquidation proceeds beyond fund life AIFs can keep back money after the normal liquidation/dissolution period (“permissible fund life”) only in three situations: A real or potential legal / tax / regulatory liability where there is a written notice or communication (including show‑cause, reassessment, investigation summons, or investor/counterparty litigation notice). A probable/possible litigation or tax demand where at least 75% of investors by value consent to retention. Residual winding‑up operational expenses, supported by invoices or comparable past expenses, and only for up to three years after fund life. 2. Investment of retained monies Any retained amount must be parked only in instruments permitted under Regulation 15(1)(f) -i.e., safe, liquid instruments like liquid mutual funds, T‑bills, bank deposits, etc., not in new high‑risk investments. 3. ‘Inoperative Fund’ status An AIF can apply to SEBI to be tagged as an Inoperative Fund if: It has one or more schemes with retained monies for the reasons above, and wants to surrender its registration eventually or It has no retained money but is keeping the registration alive only in anticipation of a favourable litigation outcome. 4. Once SEBI approves, the AIF is tagged as inoperative and: Cannot launch new schemes. Cannot charge management fees on any scheme. Must keep retained funds only in permitted liquid instruments. Must eventually apply to surrender registration once liabilities are settled and all retained money is distributed. 5. Regulatory easing for Inoperative Funds Inoperative Funds are also exempt from the most ongoing compliances: No quarterly or annual activity report, PPM audits, CTR, benchmarking‑data reporting, NISM certification, custodian requirement, or the regular investor disclosures, except: An annual retention status report, both to SEBI and investors, showing retained amounts, reasons, status of litigation/liabilities, investments of retained money, and expected resolution timeline. Updated NAV must still be reported annually where there are retained investments. 6. Coverage of erstwhile Venture Capital Funds Old VCFs registered under the 1996 regulations can also use the same retention and Inoperative Fund mechanism. The circular is effective immediately (16 June 2026). Why SEBI brought this winding‑up and inoperative‑fund framework? Several long‑dated AIFs/VCFs had technically reached the end of their life but remained “alive” only because: Some assets were stuck in disputes, tax matters, or enforcement actions, so a portion of the money had to be held back. Funds are needed to keep registration active, just in case a favourable court or tax order brings in additional recoveries. Managers were still charging fees on largely dormant funds with only cash and claims remaining. SEBI had no explicit way to tag such funds as non‑operational, while investors were trapped in half‑wound‑up vehicles. This created four problems: Regulatory overhang- A large tail of “zombie” AIFs with minimal activity but full compliance overhead and opaque status. Investor uncertainty- Investors didn’t know if delays were genuine (litigation) or just manager inertia. Scope for misuse- Managers could keep funds alive and charge fees on residual cash or contingent assets. Data clutter- SEBI’s AIF universe included many economically dead funds, distorting stats and supervision. The new regime is designed to: Allow legitimate retention for real or probable liabilities, but Force clarity: either properly wind down with a clear retention plan, or become Inoperative and stop behaving like an active fund. Compliance: what AIFs and investors must actually do For AIF managers To comply, managers must: Identify reasons for retention:  Map each scheme that needs to retain money and classify the reason: pending/anticipated litigation, tax, or residual expenses. Maintain documentary proof (notices, investor consent, invoices). Obtain investor consent where required:  For anticipated liabilities without a formal notice, secure consent from ≥75% investors by value and disclose the amount to be retained and the expected retention period. Cap and justify operational retention:  Compute and document residual expense estimates based on past years; cannot retain for more than three years post fund life. Invest retained monies only in permitted instruments:  Set up or modify treasury policies so retained amounts are invested strictly as per Regulation 15(1)(f). Apply for Inoperative Fund status (if applicable):  Fill Annexure A (detailed scheme‑wise data), provide undertakings from Manager and Trustee/Board/Partners, and email SEBI (inoperativeaif@sebi.gov.in). Fulfil reduced but continuing obligations:  Within 30 days of each March end, submit the annual retention status report (Annexure C) to all investors and SEBI's intermediary portal. Apply for surrender registration once all obligations have been settled and the bank balance is zero. For investors (LPs) Investors should: Monitor retention communications – reason, amount, and expected timeline must be disclosed. Decide whether to consent to retention in “anticipated liability” cases. Review the annual retention status report to track progress and question managers on delays. Who benefits the most 1. Legacy AIFs and VCFs nearing end of life Funds that are fundamentally over but stuck with: Pending tax/show‑cause/reassessment notices. Ongoing investor/commercial litigation. Enforcement cases affecting portfolio companies. They now get a clean way to: Retain only what is justified. Shed the full compliance load once tagged Inoperative. Eventually, surrender registration without legal risk. 2. Investors in such funds Investors gain: Greater visibility into why money is held back and for how long. Assurance that managers cannot charge management fees once the fund turns Inoperative. Confidence that retained money is parked only in low‑risk instruments. Regular annual reporting on the status and NAV of the retained pool. 3. SEBI and the broader regulatory system SEBI benefits from: A reduced universe of truly active funds to supervise. Standardised templates (Annexures A, B, C) for data on winding‑up, retained proceeds, and litigation overhang. Ability to quickly distinguish between operating AIFs and those that only exist for residual issues. Impact on businesses in India and the economy On AIF managers and the PE/VC ecosystem Short‑term operational work: Managers must strengthen the compliance, documentation, and investor communications around winding up. This is the extra work, but mostly one‑time per scheme. No more “perpetual tail” fees: Fee economics change – you can’t rely on extended wind‑up tails for recurring management fees; revenue must come from active deployment/management stages. Greater discipline in drafting fund documents: Managers will need to think about litigation/contingent liability scenarios upfront (waterfall, reserves, tail risk coverage) to avoid last‑minute retention disputes. For serious institutional managers, this is positive: it aligns India with global best practice where funds have clear tail‑provision and wind‑down protocols. On portfolio companies and businesses funded by AIFs The circular doesn’t restrict new investments it affects only funds at the end of life. But it has indirect effects: Managers may become more conservative about controversial structures or aggressive tax positions that could create long‑tail liabilities and force retention. That in turn may nudge portfolio structuring toward cleaner, simpler structures, improving predictability for businesses and reducing future disputes. On the Indian financial system and capital formation Data and transparency: AIF information will make it easier to distinguish between funds that are wound up and those that remain active. A clearer picture of actual AIF activity is provided to policymakers. Investor confidence: AIFs are a more credible asset class for domestic institutions and HNIs because of clear regulations on tail liabilities and retention, which lessen the concern of funds going missing or continuing forever with unclear communication.  No real negative for credit/ “landing system”: The framework doesn’t constrain capital raising or lending; it governs what happens after the fund has run its course. Alternate credit AIFs still operate normally during their life. Overall macro impact is modest but directionally positive: cleaner closures, clearer data, slightly higher legal and governance standards. Is this the right decision or a “dark face” for AIFs? Why is it broadly a good move? It does not cap or discourage new AIF formation or investment it targets winding‑up hygiene. It curbs potential abuse where managers sit on residual capital and continue charging fees under the pretext of unresolved issues. It forces formal investor consent for retention where liability is only anticipated, giving LPs a direct say. It recognises commercial reality: genuine litigations/tax issues can take years, and you can’t always distribute everything and then claw back later. What could worry some stakeholders? Very small or first‑time managers might find the paperwork and process around retention and Inactive status heavy. Some LPs might perceive long‑tail litigations + Inoperative status as “money stuck forever”, especially where timelines are uncertain. There is a risk that managers use “anticipated litigation” plus 75% consent as a broad excuse to over‑retain unless LPs push back vigorously. However, these concerns can be mitigated: Investors can refuse consent for vague retention proposals. Annual status reports and SEBI’s oversight discourage unjustified long tails. The fact that no management fees are allowed post‑Inoperative status reduces the incentive to prolong closure. On balance, this is not a dark face for AIFs; it’s a long‑needed clean‑up of the last mile of the fund life cycle. It actually strengthens the credibility of the Indian AIF regime by ensuring that closure is as regulated as fundraising and deployment. Business opportunities arising from the policy Specialised compliance and fund‑closure advisory: Law firms and consultants can build offerings around AIF winding‑up, litigation mapping, retention modelling, and Inoperative Fund applications. Technology platforms: Tools to track fund‑life timelines, retention pools, investor consents, and automated reporting (Annexure C format) will be in demand with mid‑size managers. Secondary / tail‑risk solutions: Niche players may emerge to buy out or insure litigation‑linked residual interests, enabling faster investor exits. LP education and governance: Investor associations and wealth platforms can run programmes to help LPs understand their rights around retention and Inactive tagging.

Subject

Summary: SEBI has issued a circular dated May 19, 2026, revising the format of the Monthly Cumulative Report (MCR) applicable to mutual funds and Asset Management Companies (AMCs). The revised reporting format will be effective from June 2026 onwards and follows the introduction of new mutual fund schemes categorised under SEBI’s categorisation and rationalisation framework.  The updated MCR format also includes the detailed disclosures on scheme-wise folios, fund mobilisation, redemptions, net inflows or outflows, assets under management (AUM), average AUM, segregated portfolios, and SIP-related data. SEBI has also introduced a separate MCR-SIF format covering equity, debt, and hybrid long-short investment strategies.  The circular or notification also clarifies that all other provisions under Clause 6.20 of the SEBI Master Circular for Mutual Funds dated March 20, 2026, will remain unchanged. The revised framework aims to improve transparency, streamline reporting practices, and strengthen investor protection in the mutual fund industry.