SEBI Mandates 30 Days Period for Mutual Funds To Rebalance Schemes
Moneylife Digital Team 30 March 2022
Market regulator Securities and Exchange Board of India (SEBI) has mandated a 30-days period for all mutual fund (MF) schemes, other than index funds and exchange-traded funds (ETFs), for rebalancing of their portfolios. SEBI says this will bring uniformity across MFs.
In a circular, SEBI says, "In the event of deviation from mandated asset allocation mentioned in the scheme information document (SID) due to passive breaches (occurrence of instances not arising out of omission and commission of asset management companies-AMCs), rebalancing period across schemes shall 30 business days for all schemes other than index funds and ETFs. This is not applicable for overnight funds."
If the portfolio of schemes is not rebalanced within the mandated timeline of 30 business days, a justification in writing, including details of efforts made to rebalance the portfolio, should be placed before the investment committee. "The investment committee, if it so desires, can extend the timelines up to 60 business days from the date of completion of mandated rebalancing period."
"In case the portfolio of schemes is not rebalanced within the mandated plus extended timelines, AMCs will not be permitted to launch any new scheme till the time the portfolio is rebalanced. AMCs are not to levy exit load, if any, on the investors exiting such schemes," SEBI says.
The market regulator has also asked AMCs to report the deviation to MF trustees at each stage. 
Further, if the assets under management (AUM) of deviated portfolio is more than 10% of the AUM of the main portfolio of scheme, the AMCs have to disclose it immediately to the investors through SMS and email or letter, including details of the portfolio not rebalanced. 
"AMCs will also have to immediately communicate to investors through SMS and email or letter when the portfolio is rebalanced. Subject line of these emails or letters should be uniform across industry and clearly indicate 'breach of' or 'deviation' from mandated asset allocation," SEBI says.
According to the circular, AMCs have to disclose any deviation from the mandated asset allocation to investors along with periodic portfolio disclosures as specified by SEBI from the date of lapse of mandated plus extended rebalancing timelines. 
These norms are applicable to the main portfolio only and not to segregated portfolios if any and will be effective from 1 July 2022, SEBI says.  
3 months ago
A positive and investor friendly move on part of SEBI. Currently, MF investors have no way of knowing whether scheme is following the asset allocation, as promised in Scheme document.
Free Helpline
Legal Credit