Mutual funds: Sebi introduces deadlines for portfolio rebalancing

The Securities and Exchange Board of India (Sebi) on Wednesday unveiled guidelines for rebalancing the portfolios of schemes launched by mutual funds.

According to Sebi, the rebalancing period will be applicable in case of deviation from the mandatory asset allocation mentioned in the Scheme Information Document (SID) due to passive violations. With the exception of overnight funds, all schemes will have a mandatory 30-day rebalancing period, in the event of a deviation from the mandatory asset allocation mentioned in the scheme’s information document due passive violations. The mandatory rebalancing period for all mutual funds except index funds and exchange-traded funds (ETFs).

If the rebalancing is not completed within the specified timeframe, a written justification, including details of the efforts made to rebalance the portfolio, must be submitted to the relevant investment committee. The Committee may extend the deadlines up to 60 business days from the date of completion of the mandatory rebalancing period. According to Sebi, if the portfolio of programs is not rebalanced within the extended time frame, AMCs would not be allowed to launch a new program until such time as the portfolio is rebalanced. They would also be prohibited from taking an exit charge.

Dolores W. Simon