Sebi issues timelines for rebalancing portfolios of mutual fund schemes

Markets regulator Sebi on Wednesday came out with timelines for rebalancing of portfolios of mutual fund schemes in order to bring uniformity.

Issuing a circular, the watchdog said the rebalancing period will be applicable in the event of deviation from mandated asset allocation mentioned in the Scheme Information Document (SID) due to passive breaches.

Passive breaches are generally that have not arisen due to omission and commission of Asset Management Companies (AMCs).

The mandated rebalancing period for all mutual fund schemes, except Index Funds and Exchange-Traded Funds (ETFs) is 30 business days.

In case, the rebalancing is not done within the mandated timelines, justification in writing, including details of efforts taken to rebalance the portfolio should be placed before the investment committee concerned. The committee can extend the timelines up to 60 business days from the date of completion of mandated rebalancing period.

According to Sebi, if the portfolio of schemes is not rebalanced within the extended timelines, then the AMCs would not be permitted to launch any new scheme till the time the portfolio is rebalanced.

They would also be disallowed from levying exit load, if any, on the investors exiting such schemes.

AMCs are required to report the deviation to trustees concerned at each stage.

In case the AUM of a deviated portfolio is more than 10 per cent of the AUM of the main portfolio of the scheme, Sebi said AMCs have to immediately disclose the same to the investors through SMS and e-mail/letter, including details of portfolio not rebalanced.

“AMCs shall also have to immediately communicate to investors through SMS and email/letter when the portfolio is rebalanced,” the regulator said.

The norms would be applicable to main portfolio only and not to segregated portfolios, if any. They would come into effect from July 1, 2022.