The Securities and Exchange Board of India (SEBI) has notified two separate sets of amendment regulations on July 3, 2026, addressing distinct areas of the securities market regulatory framework mutual fund borrowing norms and custodian fee structures.
1. SEBI (Mutual Funds) (Amendment) Regulations, 2026
Background
The Securities and Exchange Board of India (Mutual Funds) Regulations, 2026 were originally published in the Gazette of India on January 15, 2026 vide notification No. SEBI/LAD-NRO/GN/2026/294. SEBI has now amended these regulations vide notification No. SEBI/LAD-NRO/GN/2026/307, dated July 3, 2026.
Key Amendment
Under Chapter VII of the principal regulations, Regulation 42(2) has been substituted in its entirety. The revised provision clarifies that nothing in sub-regulation (1) shall restrict mutual funds from undertaking intraday borrowing to address timing mismatches between the outflows and inflows of a scheme, subject to such conditions as may be specified by the Board.
Analysis
This amendment addresses a recurring operational challenge faced by asset management companies: same-day gaps between the timing of redemption payouts from a scheme's account and the corresponding inflows expected into that account. Previously, the general restriction on borrowing by mutual fund schemes under Regulation 42(1) created ambiguity as to whether such short-term, intraday borrowing to bridge these gaps was permissible.
The amended provision removes this ambiguity by expressly carving out intraday borrowing for timing mismatches from the scope of the borrowing restriction. However, this flexibility is not unconditional — it remains subject to conditions that the Board is yet to specify. Fund houses and their compliance teams should accordingly watch for a follow-up circular or framework from SEBI detailing the permissible limits, disclosure requirements, and operational safeguards attached to this facility.
Effective Date
The amendment came into force on the date of its publication in the Official Gazette, i.e., July 3, 2026.
2. SEBI (Custodian) (Amendment) Regulations, 2026
Background
The Securities and Exchange Board of India (Custodian of Securities) Regulations, 1996 were originally published in the Gazette of India on May 16, 1996 vide S.O. No. 344(E), and were last amended on September 23, 2025 by the SEBI (Custodian) (Amendment) Regulations, 2025 vide notification No. SEBI/LAD-NRO/GN/2025/267. SEBI has now further amended these regulations vide notification No. SEBI/LAD-NRO/GN/2026/308, dated July 3, 2026.
Key Amendments
The amendment fundamentally restructures the fee payment cycle for custodians from an annual basis to a monthly basis:
- Regulation 9(d) and Regulation 26(i): The word "annual" has been substituted with "monthly" in both provisions.
- Second Schedule, Part A, clause (iii): The fee structure has been revised from an annual fee of Rs. 10,00,000 or 0.0005 (whichever is applicable) to a monthly fee of Rs. 85,000 or 0.0000416.
- Second Schedule, Part B, clause (II): The heading "Payment of annual fee" has been substituted with "Payment of monthly fee," and the operative sub-clauses have been revised as follows:
- Sub-clause (1): From the commencement of the amendment regulations, the monthly fee is payable within 15 days of completion of each month.
- Sub-clause (2): A custodian granted registration on or after the commencement of the amendment regulations shall pay a proportionate monthly fee for the month of registration, followed by the full monthly fee for every subsequent month during which the registration subsists.
- Sub-clause (3): A custodian granted registration before the commencement of the amendment regulations shall pay a proportionate annual fee for the financial year in which the amendment commences, payable within 15 days of such commencement, and thereafter shall pay the full monthly fee for every subsequent month. Any annual fee already paid in respect of a period falling after the commencement date shall be proportionately adjusted against the amount payable under this transitional arrangement.
- Sub-clause (4): The word "annual" has been substituted with "monthly."
Analysis
This amendment represents a structural shift in how custodians remit registration fees to SEBI — moving away from a single annual lump-sum payment toward a rolling monthly payment cycle. The revised monthly fee of Rs. 85,000 (or 0.0000416, as applicable) is designed to be broadly equivalent to the erstwhile annual fee of Rs. 10,00,000 (or 0.0005) when annualized, suggesting the change is intended primarily as a shift in payment frequency rather than a substantive fee increase.
The transition provisions are particularly relevant for existing custodians. Those already registered before the commencement date must pay a proportionate annual fee for the transition financial year within 15 days of commencement, with any previously paid annual fee adjusted against this amount, before moving fully to the monthly cycle thereafter. Newly registered custodians, by contrast, step directly into the monthly fee framework from the outset.
Custodians should review their internal billing, accounting, and compliance calendars well ahead of the effective date to ensure timely computation of the transitional proportionate fee and adjustment of any fee already paid.
Effective Date
Unlike the mutual funds amendment, this notification does not take immediate effect. It shall come into force on October 1, 2026, providing custodians a transition window of approximately three months from the date of notification.
Conclusion
Both amendments, notified on the same day, reflect SEBI's continued fine-tuning of the operational and financial framework governing market intermediaries. While the mutual funds amendment provides operational flexibility to address short-term cash flow mismatches, the custodian amendment recalibrates the fee payment cycle to align with a monthly billing model. Market participants — particularly asset management companies and custodians — are advised to assess the applicability of these changes to their internal processes and ensure compliance within the respective effective timelines.
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