SEBI Extends Rebalancing Timeline Rule To All Passive Mutual-Fund Breaches
While active breaches are considered violations of the SEBI mutual fund regulations, passive breaches often stem from external factors and market dynamics.
Market regulator SEBI announced on Thursday that mutual funds must now adhere to portfolio rebalancing timelines for all types of passive breaches in actively managed schemes.
Previously, these timelines only applied to passive breaches related to asset allocation.
A passive breach occurs when a scheme unintentionally deviates from its required asset allocation or regulatory limits. These deviations are not a result of direct actions or omissions by the Asset Management Companies. Such breaches can be triggered by corporate actions, significant price fluctuations, maturing investments, or large investor redemptions.
The standard rebalancing period for most mutual fund schemes (excluding Index Funds and ETFs) is 30 business days. This clarification, stemming from a recommendation by the Mutual Funds Advisory Committee, aims to ensure consistent regulatory compliance and bolster investor protection.
"In view of...the recommendation of the Mutual Funds Advisory Committee, it is clarified that the provisions shall be applicable for all types of passive breaches for the actively managed mutual fund schemes," the Securities and Exchange Board of India said in a circular.
The regulator said that provisions for mutual funds will now apply to all such breaches, mandating timely rebalancing even when the deviations are not deliberate.
The regulator also underlined that while active breaches are considered violations of the SEBI mutual fund regulations, passive breaches often stem from external factors and market dynamics.
Despite their unintentional nature, these breaches could still affect the risk profile of schemes, making it necessary to rebalance portfolios within a stipulated time frame, SEBI said.
(With PTI Inputs)
