India's market regulator is proposing to tighten rules for alternative investment funds (AIFs) by restricting their ability to borrow for investments, a consultation paper showed on Thursday.

The Securities and Exchange Board of India said AIFs shall not borrow funds directly or indirectly for the purpose of making investments.

While this was previously disallowed, SEBI said that further clarity was needed.

Alternative investment funds typically tap into high-net-worth individuals to make investments in listed and unlisted securities.

However, such funds could borrow in small amounts in emergency situations when an expected drawdown of funds from an investor may be delayed, SEBI added.

"The amount borrowed shall not exceed 10% of the investment proposed to be made in the investee company," SEBI said.



(Reporting by Ira Dugal; editing by Eileen Soreng)