Timelines for Rebalancing of Portfolios of Mutual Fund Schemes
Summary
SEBI mandates specific timelines for mutual fund schemes to rebalance portfolios following passive breaches of asset allocation. Overnight funds are exempt, while other non-index/ETF schemes must rebalance within 30 business days, with a possible extension to 60 days. Failure to comply results in restrictions on launching new schemes and mandatory investor disclosures.
Text
In the event of deviation from mandated asset allocation mentioned in the Scheme Information Document (SID) due to passive breaches... rebalancing period across schemes shall be as follows: i. Overnight Fund NA ii. All schemes other than Index Funds and Exchange Traded Funds Thirty (30) business days
In case the portfolio of schemes... are not rebalanced within the above mandated timelines, justification in writing... shall be placed before Investment Committee. The Investment Committee, if so desires, can extend the timelines up to sixty (60) business days from the date of completion of mandated rebalancing period.
In case the portfolio of schemes is not rebalanced within the aforementioned mandated plus extended timelines, AMCs shall: i. not be permitted to launch any new scheme till the time the portfolio is rebalanced.
ii. not to levy exit load, if any, on the investors exiting such scheme(s).
i. AMCs to report the deviation to Trustees at each stage.
In case the AUM of deviated portfolio is more than 10% of the AUM of main portfolio of scheme: 1. AMCs have to immediately disclose the same to the investors through SMS and email / letter including details of portfolio not rebalanced. 2. AMCs shall also have to immediately communicate to investors through SMS and email / letter when the portfolio is rebalanced.
iii. 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.
The above mentioned norms shall be applicable to main portfolio only and not to segregated portfolio(s), if any and shall be effective from July 01, 2022.
This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996...
Source: SecMarx — Timelines for Rebalancing of Portfolios of Mutual Fund Schemes. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.