India’s securities regulator is tightening its rules for mutual fund schemes, as it now requires portfolio rebalancing timelines to apply across types of passive breaches in actively managed funds.
Currently, the regulator mandates portfolio rebalancing within 30 business days applied only to passive breaches related to asset allocation. With the new directive, the 30-day timeline is also applied to all passive breaches in actively managed schemes, excluding index funds and exchange traded funds (ETFs), Securities and Exchange Board of India (Sebi) says in a statement on June 30.
Passive breaches are deviations in a mutual fund’s portfolio from the mandated asset allocation or regulatory limits that arise not from deliberate action of asset management companies.
The tightening of the rule came in the wake of a recommendation made by the Mutual Funds Advisory Committee (MFAC) and is aimed at ensuring consistency in regulatory compliance and enhancing investor protection.
"In view of...the recommendation of the Mutual Funds Advisory Committee (MFAC), it is clarified that the provisions shall be applicable for all types of passive breaches for the actively managed mutual fund schemes," Sebi says.